Date: 06 Aug 2018

Is the EURUSD set for a test of the downside? Traders will have their own views but Canada’s RBC Capital markets, writing Friday, thinks that’s a realistic possibility.  The Canadian firm notes that last week’s euro zone “Q2 GDP data were disappointing for EUR bulls, and Euro area data more generally have been soft” and that while “as recently as March”  the European Central Bank (ECB) “was looking for Q1 & Q2 to register growth above potential, reducing spare capacity and pushing inflation towards 2 per cent,” instead “it appears the Euro area only grew in line with trend in H1.” RBC Capital Markets contends euro zone “trend-only growth highlights the risk of slower than expected ECB tightening (contrasted to faster than expected Fed hiking)” and could lead the currency market to push EURUSD lower. Applying technical analysis to the pair, the Canadian firm notes that while “EUR/USD has been trading in a narrowing range, unable to break above 1.18 or below 1.1550” there’s also the issue of a double bottom on the EURUSD at 1.1510 and that a daily close below that level could open up a move down to 1.1448 or even 1.1313. Whether the wider currency market shares that belief remains to be seen.

by Neal Kimberley, External Currency Analyst.