German ZEW investor confidence weakened more than expected, with the expectations reading falling back -8.6 points to just -24.7, the lowest reading since August 2012. The current conditions indicator also dropped sharply despite the recent rebound in orders and production number. The ZEW institute highlighted “great political uncertainty” and “fears over an escalation of the international trade war with the United States” as the main reasons for the decline, with the “anticipated negative effects on foreign trade”. overshadowing improvements in incoming orders and the labour market. At the same time the expectations reading for the overall Eurozone also dropped sharply, although the -6.1 decline over the months was less dramatic than the drop for the German reading, which likely reflects the fact that the export oriented German economy is deemed more sensitive for international trade jitters. Overall, the data highlights that concerns about future risks outweigh a still positive domestic situation, which also means that markets at least are unlikely to buy into Draghi’s optimistic assessment of the current economic situation.
EURUSD printed a new 2-session low at 1.1714, extending the retreat from the 3-week high seen yesterday at 1.1790. A broad Dollar bid has driven the move, with demand having picked up out of recent lows. EURUSD remains overall as being in a broadly consolidation phase, which has been unfolding for over a month now, and which followed a 6-week down phase from levels above 1.2400.The range over this sideways period has been 1.1508 to 1.1851.
More of the same looks likely for now. A major “known unknown” is to how deep and how prolonged the Trump-led trade war with major economies will be, and what economic and currency market fallout this will cause. This is, for now, curtailing directional commitment.
In the shortterm timeframe however, such as the hourly chart, EURUSD is at a crucial retracement level as it is currently trading at the confluence of the upchannel neckline along with the latest low fractal and the 50% Fib level since last Thursday. This particular area between 1.1720-1.1730 could support the pair and therefore is likely to see a retrace to day’s high around 1.1750s. Oppositely a close of the hourly candle below this Support area suggests a retest of 1.1700 (Friday’s support level) and 1.1688 (200-period EMA).
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