Technical View
On the weekly chart (chart 1), price seems to have found a base near the 62% Fibonacci correction level at 1.1185. Price has a low of 1.1210. This is the 62% Fibonacci point of the rally that started in Jan 2017 till Feb 2018. If price can stay above this Fibonacci point, it would mean there is going to be a rally higher than 1.25. However if price were to drop below the 62% Fibonacci point, it would mean a price movement back to the start of the rally at 1.0320. On the momentum side, while both Stochastic and MACD had shown bullish divergence warnings of a possible low, the rally thereafter in Stochastic and MACD, were both weak. MACD’s Signal line is weak and is still below zero and bearish. The faster line had not been able to move above zero into positive zone. This is a hint of its weak strength. Similarly, Stochastic had a rally together with price but Stochastic was unable to exceed it previous high point. The weekly chart looks weak.
On the daily chart (chart 2), it looks weak as well. The rally from the last decline (1.1815-1.1215) stopped just before the Fibonacci 62% correction level. Inability to move above the Fibonacci 62% is usually a sign of a price reversal. Stochastic is still moving lower and has yet to show a reversal. MACD may be bullish but the faster line and the histogram are bearish. A break of the rising trendline would accelerate the decline to 1.1185.
Fundamental View
- US rate hikes are on pause at the moment but ECB is also likely to delay its monetary normalization policy. Market is expecting ECB to hike rate only in the 4Q of 2019. The widening of interest rate differential may have peak but the gap is still a substantial 2.5%. Interest rate differential will keep US$ strong against the Euro.
- IMF has downgraded its global economic outlook for 2019 and 2020, citing a bigger than expected slowdown in China and Euro zone. With a slowing economy, ECB is likely to take its time to hike rate in 2019.
- EC has cut growth forecast for Italy to 0.6% and this could weigh Euro currency down.
- A no deal Brexit could also impact Euro zone
Strategy
We remain bearish on EUR/USD, similar to the call on 31st Oct 2018 but we would like to revise our 3 months target higher to 1.1185.