Political Uncertainty Keeps the Euro Dollar Weak

Political Uncertainty Keeps the Euro Dollar Weak
February 8, 2017

 
Lower-than-anticipated wage growth coupled with marginally higher-than-expected unemployment rate triggered a US dollar selloff earlier this week. One of the currencies which strengthened against the Greenback is the Euro dollar. Better than anticipated Producer Price Index (PPI) reading in the Euro zone also assisted the Euro dollar to stay strong. However, after recording a high of 1.0828 on February 2nd, the EURUSD began to decline. One of the main reasons for the decline is the increasing concern about the possible rise of nationalist and anti-EU parties in the French election. However, as detailed below, there are few other factors which are expected to keep the EURUSD on a declining note.

The upcoming French election has once again increased the political concerns among international investors. Thus, safe haven currencies are once again in demand. The political risk has resulted in a sharp rise in the yields of the French OATs (Obligations Assimilables du Trésor). This is putting considerable pressure on the Euro dollar.

In the first round of the French election Marine Le Pen is expected to win easily. However, according to political analysts, winning the second round would be an uphill task for Le Pen. Still, investors are not willing to take chances as parallels can be drawn with the shocking outcome of the Brexit referendum and unexpected victory of Donald Trump in the US Presidential race. So, investors are slowly shifting to safe haven investments after selling their Euro dollar holdings.

While giving a speech at the joint ECB and Banka Slovenije conference on Monday, the ECB President Mario Draghi stated that the CPI (Consumer Price Index) reading is yet to show signs of a firm rise even though the headline inflation has picked up. Thus, according to Draghi, a continuation of the stimulus program is a must. The opinion has created a gloomy view of the Euro dollar.

In the case of the Greenback, so far the market has priced in only two rate hikes. Furthermore, the US dollar has become more attractive to investors after the recent correction. The US economy is near full-employment. Thus, based on the details discussed above, we anticipate the EURUSD to decline further.

Yesterday, the EURUSD broke the crucial support level of 1.0720. The next major support for the pair exists at 1.0420. The main line of the MACD indicator has crossed below the signal line. This indicates that sellers are currently in control. So, there is a high probability of further decline of the currency pair.

A Forex trader can go short in the EURUSD pair near 1.0680 to benefit from the forecasted downtrend. Considering the sharp fall in the recent days, a stop loss order should be compulsorily placed above 1.0780. The short position can be covered when the pair declines to a low of 1.0450.

EURUSD - Technical Analysis - 8th February 2017

A binary trader can purchase a low or below contract to earn from the EURUSD pair’s downtrend. The position should be taken when the pair trades above 1.0680. Furthermore, to allow adequate time for the decline, the contract should not expire before seven trading days from the time of purchase.

Sammy

Sammy

Sammy is our forex expert, with over 20 years experience in the financial sector, she will be keeping you up to date with the ups and downs of currencies around the world


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