EURUSD

11:22, 30 May

Daily analysis

In the last few days the EURUSD has reversed and eased lower back below the current key level of 1.12 moving to a one week low, and again looking poised to move through 1.11 to a two year low. A few weeks ago it attempted to rally higher however it formed a classic reversal candlestick pattern before easing lower. In doing so, it has continued to achieve lower peaks and lower troughs and now looks poised to threaten the recent troughs around 1.11. 
The 1.12 level has ably supported the currency pair in the last couple of months however the overall trend has been clearly down with lower peaks from its trading levels above 1.15 to start the year. Now that the 1.12 level has been strongly broken through it is likely to continue to provide resistance, as it did a few days ago.

About a month ago, the EURUSD attempted to climb back above the other current key level of 1.13 and after meeting resistance there for around a week, it was thwarted and sold off reasonably strongly falling to the two year low. In early February the EURUSD was sold off after running into resistance at the other key level of 1.15, and it has maintained its trading range between 1.13 and 1.15 for the most part of the last six months. Again, it is currently looking like it might struggle to return to this range as it pushes lower below 1.13 and 1.12.

On numerous occasions in the last few months the EURUSD has enjoyed rock solid support from the key 1.13 level so it will be interesting to see if it has another rally left, now that it is receiving tough resistance from this level. It is interesting to note that its excursion above 1.15 earlier in the year didn’t last long as it was quickly sold down at those three month highs. The 1.13 level has also become quite significant of late, and even though it has fallen through this level a few times, it was quickly pushed higher through strong buying, however this confidence is now likely gone.

In its Financial Stability Review released on Wednesday, the European Central Bank warned that weaker-than-expected growth and a possible escalation of trade tensions could trigger further falls in asset prices.  The biggest risk to financial stability in the eurozone presently is a growth slump that could be caused by rising trade tensions."A potential trade war is perhaps the main risk, the main threat to the economic environment globally and simultaneously for financial stability," ECB vice-president Luis de Guindos said in a Frankfurt press conference.  Speaking on CNBC, Mr de Guindos said a full-blown trade war between the U.S. and China would be “extremely detrimental,” adding that “it could affect not only the volatility of markets, it could affect the real economy quite rapidly.”  He said that within the context of the current global economic slowdown, escalating trade tensions would be “very negative news” for the global economy.  In March the ECB slashed its growth forecast for 2019 to 1.1% from an earlier forecast of 1.7% made in December 2018. At the time, ECB President Mario Draghi said that there had been a “sizable moderation in economic expansion that will extend into the current year.”