EUR/USD: weekly trading insight

September 19, 2014

Euro had a volatile week, but stayed mostly within the previous range.

The TLTRO take-up was lower than expected. The European banks applied only for a bit more than 80B euro in loans from the European Central Bank, while the market expected a reading of about 150B euro and higher. From the overall perspective this is negative for EUR, because it means that the banks don’t want to finance the economy of the euro area. However, there was no big selloff of the single currency on the news: the low reading was mostly priced in plus market players know that there will be other TLTROs in future.

The next week the single currency will be tested by the euro zone’s PMIs and the German Ifo index. Moreover, Mario Draghi will have to justify the ECB’s policy as he will speak before the European Parliament’s Economic and Monetary Committee on Monday.

All in all, euro is on its way to show another bearish week, 10th in a row. The past week opened with a gap up, but the bulls failed to return above the 50% Fibo retracement of the move from 2012 to 2014 at $1.3015. We still got weekly candles with long lower shadows signaling that the sellers, though still in control, lacked the decisive power to fix at the new minimums. The pair’s dynamics reminds of the moves at the end of July and the beginning of August when there were 3 candles like this. Back when we saw a break to the downside.

Daily ADX is above 25, so the downtrend remains strong. Dynamics on the daily chart suggests that next week we may see more of the sideways movements between the daily Bollinger bands as the news from the euro area and the US balance each other. A break above $1.2995/$1.3000 is needed so we could declare a temporary bottom and move towards $1.3100. On the downside our medium-term targets remain at $1.2790 and $1.2750.

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