Europe’s economy is deteriorating and a rate cut is becoming more likely. Whether or not it actually helps the economy is another story.
BEARISH DRIVERS
Tuesday morning, the euro weakened for two reasons, the first being the forex market is starting to believe ECB President Mario Draghi’s comment that a “a new rate cut was always a possibility” and second reason is that sluggish German data showed that the private sector output declined for the first time since November.
[Editor’s note: Click here to learn more about Moya’s forex instruction.]
WEAK DATA
The first round of euro selling was triggered after German Flash Manufacturing declined to 47.9 in April, well below the forecast of 51.0 and March reading of 50.9. Further downward pressure may be limited, but it is apparent that many are changing their opinion that a 25 basis point rate cut is becoming more likely than not.
MORE LOSSES AHEAD
The euro/Aussie (EUR/AUD) has tentatively resumed its longer-term bearish trend after respecting the key 50.0% Fibonacci retracement level of the February high (1.3190) to the April low (1.2218) move. The daily chart also displays a potential bearish Gartley pattern that targets a bearish at point D.
KEY LEVELS AND TARGETS
If price has a daily close below both the 50-day and 100-day simple moving average, price may target the 1.2450 level. If price recaptures the 1.2750 level, further upside may target the 1.2800 level.
