Inflation is high and may force the American regulator to be more aggressive. Also, there are risks of seeing a reduction in liquidity on behalf of the Fed, while the European Central Bank is expanding its money printing press capacity. Taken together, these factors are in favour of further USD strengthening.
The statistics published today showed that the German Ifo Business Climate dropped to 100.8 points. It means that the German businesses are predisposed more negatively than before as there are serious delivery issues, which, in their turn, put significant pressure on both industrial and retail sectors of the economy.
It was said that over 60% of the companies reported a shortage of raw materials required for manufacturing, as well as an upsurge in raw material prices. In this light, the German industry can not operate at its normal pace. Unfortunately for the European currency, it is happening at a time when the USA is experiencing a relatively powerful economic recovery and this will put additional pressure on the major currency pair.
In the H4 chart, EUR/USD is falling towards 1.1725 and may later correct to reach 1.1800. After that, the instrument may resume trading downwards with the target at 1.1690. From the technical point of view, this scenario is confirmed by MACD Oscillator: its signal line is trading below 0, thus confirming a further downtrend on the price chart.
As we can see in the H1 chart, after falling and reaching 1.1755, EUR/USD has completed the ascending correctional impulse at 1.1800. Possibly, the pair may rebound from the latter level and resume trading within the downtrend with the short-term target at 1.1725. From the technical point of view, this scenario is confirmed by the Stochastic Oscillator: after rebounding from 80, its signal line is steadily moving downwards to reach 50. Later, the line may break 50 and continue falling towards 20.
By Dmitriy Gurkovskiy, Chief Analyst at RoboForex
Any forecasts contained herein are based on the author’s particular opinion. This analysis may not be treated as trading advice. RoboForex bears no responsibility for trading results based on trading recommendations and reviews contained herein.