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EURUSD forms death cross


6 May 2021

The world’s most traded currency pair could be about to drop further. EURUSD has formed what’s known as a “death cross”, whereby its 50-day simple moving average has crossed below its 200-day counterpart. Such a technical event typically heralds further declines.

The currency pair is now testing the psychological 1.20 mark as a support level, failing which then the early-February low of around 1.1955 could be the next area of interest for bears. May is typically a bad month for the euro. Over the past 10 years, the euro has averaged a 1.63% monthly decline versus the US dollar in May alone.

And in living up to such a track record, indeed the euro’s fortunes have been already dismal so far this month, with the shared currency weakening against most of its G10 peers so far this week. Fundamentally-driven traders and investors will be eyeing these economic data releases due before the weekend:

Still, better-than-expected readings of the Eurozone economy may only have a limited impact on the euro’s performance. Despite the rosier economic outlook for the EU, the US dollars appears to have a bigger say on EURUSD, with the greenback supported by stabilising US Treasury yields.

As for ECB President Christine Lagarde, who’s due to make a speech later today, she and her colleagues at the European Central Bank may not mind this softer euro. After all, a weaker currency would help buffer its economic recovery. A weaker currency can make Europe’s exports become more competitive on the global stage, while staving off inflationary pressures.

EURGBP climb loses steam

As for EURGBP, the currency pair’s attempts to break out of its downtrend has been capped by the 0.872 region, with the currency pair now finding support around its 50-SMA for the time being. The Bank of England’s decision today is also in keen focus, although the central bank is unlikely to adjust its policy setting.

Yet, the forward-looking investor will be monitoring the BOE’s economic outlook, considering the stellar progress the UK has enjoyed with its vaccination programme. The inoculation campaign's early successes have already prompted UK Prime Minister Boris Johnson to expect the end of social-distancing measures by June 21. Such a move would be a massive boost to economic activity in the UK.

Such optimism may also encourage a hawkish tone out of BOE officials who may hint at an eventual paring back of its bond purchases today. Such hints may spur further gains in the Pound, potentially pushing EURGBP below its 50-SMA and on a path towards its mid-March lows of around 0.85377.

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