Euro Exchange Rates Set to End the Week on a High BUT Key Resistance Points Lie Ahead

The euro is set end the week higher against both the US dollar and pound sterling having shaken off mid-week losses following German industrial production data.

Gains have come across the board with the euro to pound sterling exchange rate trading at 0.7374, a recovery from the 0.7350 lows we saw in mid-week trade following the release of the industrial data.

The euro to dollar exchange rate is trading half a percent higher having reached 1.1323. EURUSD resistance remains 1.1325-1.1340 and a break-up through there is needed to open further gains.

Analysis of the EURUSD exchange rate conducted by S.E.B confirm more gains are possible from here:

"Even though most factors speaks in favour of a bear flag being under construction since Sept 22 the short term charts speaks of more near term upside risk.

"A move above 1.1273 will trigger an hourly buy signal calling for a test of the flag’s upper boundary, 1.1340-ish (and then turning for a downside test). To avoid the above scenario prices must fall back below 1.1211."

As the above shows the euro is in an uptrend against the dollar, in place since July. With EURUSD trading above the 20, 50 and 100 day moving averages more gains are possible.

Regarding the EUR/GBP exchange rate, analyst Karen Jones at Commerzbank suggests that strength here will likely be limited:

"EUR/GBP has reached the 55 week ma at .7436 where we are beginning to see signs of failure. The market faces tough overhead resistance at the .7482 May peak and this extends from here to .7542 (this is the location of the previous 43 year uptrend, which should now act as resistance).

"We look for this to cap the market. Here we also find the .7555 2013-2015 downtrend."

German Data Suggests a Gloomier Outlook for the Euro

The euro was hammered in mid-week trade after it was reported that German Industrial Production for August slipped by 1.2%.

Analysts had priced the euro higher in anticipation of growth at 0.2%.

The decline in German economic activity will come as a shock to those expecting the Eurozone economy to now be on a positive footing.

From a currency perspective this data reading is seen as another reason why the European Central Bank (ECB) should consider expanding its asset purchase programme.

Whenever currency traders get a hint of such an expansion the euro is sold.

Interestingly, it was exactly a year ago when we were reporting on the same situation - the euro was falling as gears grew over the strength of the German economy and the prospect of ECB quantitative easing being introduced.

History thus shows that the ECB does react to German economic weakness, and could therefore do so again.

Latest Pound/Euro Exchange Rates

	Live: 1.1461▲ + 0.16% 12 Month Best: 1.2162
*Your Bank's Retail Rate	1.1071 - 1.1117
**Independent Specialist	1.1301 - 1.1346 Find out why this is a better rate

* Bank rates according to latest IMTI data.

** RationalFX dealing desk quotation.

 

“It remains to be seen whether this month’s data print represents a mere blip or a genuine loss in momentum - the timing of school holidays can often exacerbate the inherent volatility of this series at this point of the year,” says Timo del Carpio, European Economist, RBC Capital Markets.

Moreover, the relative resilience of contemporaneous survey indicators for Germany may offer some consolation; RBC’s PMI-based measure in fact continues to point toward growth of 0.5% q/q.

del Carpio believes the German economy to benefit from robust domestic demand as well as the sustained recovery elsewhere in the currency block

“For now, however, this release offers an unwelcome warning sign of slowing in momentum over the latter half of the year,” says del Carpio.

Heading into the weekend moves in the euro / dollar exchange rate appear to be a function of US dollar weakness, and there is certainly scope for the dollar sell-off to extend.

"The US Dollar Basket has been selling off throughout October. There is clearly the potential for further downside given the size of the previous selloffs down to $92.75 and $94.20. However, the long lower shadow on yesterday’s lowest candle shows clear support existing in this area, which marks the convergence of the ascending trendline and 61.8% Fibonacci retracement," says Joshua Mahony Market Analyst with IG in London.

Mahony notes the existence of "very small indecision candles" which confirm a hesitancy and he therefore awaits a break below $95.23 to gain confidence of a further move lower.