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The single currency marked second consecutive decline against the US dollar on Wednesday. The pair tested the support at 1.1239 and if bearish sentiment continue, it will be broken. The session started at 1.1304 and the euro lost 42 pips. Next support is located at 1.1197. Resistance is seen at 1.1382 and 1.1427.
German IFO Index Dips to Six-Month Low
The German IFO index for August declined significantly to 106.2 from 108.3 previously and was much weaker than the expected figure of 108.5, which will trigger fresh doubts surrounding the German outlook.
There was a decline in the current conditions index to 112.8 from 114.7 with the expectations index falling to 100.1 from 102.2 previously and both elements were also notably weaker than the consensus forecast.
This was the lowest headline reading for six months and also the sharpest monthly decline for over three years with concerns that expectations and the current situation both weakened.
German industry remains very sensitive to external shocks given the extremely important contribution from the export sector. In this context, the UK referendum decision to leave the EU is still having a potentially important impact, especially given Euro strength against Sterling.
There was an improvement in the monthly ZEW index for August, although this index had fallen much more sharply in reaction to the referendum vote. The relative performance of the ZEW and IFO releases suggests that companies took a measured stance immediately after the vote, but are now more concerned over the outlook.
There will be fresh doubts surrounding the German outlook, especially with a sharp decline in services-sector expectations seen in the August PMI data. Forthcoming data will be watched very closely to assess whether the feared impact has materialised.
After a brief spike lower, the Euro moved higher as the dollar failed to gain any fresh traction with EUR/USD moving back to 1.1290 from 1.1270. German bunds failed to hold the initial gains and dipped back into negative territory, while the Dax index extended losses to beyond 1.0%.
September 2016 German GFK consumer sentiment 10.2 vs 9.9 exp
September 2016 German GFK consumer sentiment
Although Germany was expecting a slower second quarter, this data suggests the consumer side of the economy should hold up fairly well.
Yesterday the EURUSD rose with a narrow range and closed near the high of the day, in addition managed to close within the previous day range, which suggests being slightly on the bullish side of neutral.
The pair is trading below the 10-day moving average that is acting as a dynamic resistance and is trading well above the 50 and the 200-day moving averages that are acting as dynamic supports.
The key levels to watch are: a daily resistance at 1.1460, a 61.8% Fibonacci retracement at 1.1347 (resistance), the 10-day moving average at 1.1291 (resistance), a daily support at 1.1237, and the 200-day moving average at 1.1163 (support).
On Thursday session the euro broke the negative momentum from the last two sessions and recovered some of its losses against the US dollar. If the upward direction continue,the resistance at 1.1382 will be broken soon. Support is seen at 1.1239 and 1.1197.
I believe that the support is now located at the level of 1.1242, Wednesday's low and resistance is likely to be at the level of 1.1357 - a maximum of Tuesday.
Dollar Boosted by Yellen's Comments
The EUR/USD pair was trading lower on Friday as investors closely monitored the long awaited speech of Federal Reserve (Fed) Chair Janet Yellen at the Jackson Hole annual central bank symposium.
Yellen said that the case for a rate-hike has strengthened over the last few months and the Fed is getting closer to reaching its targets on the labor market and inflation.
As Yellen's speech was broadly regarded as the weekly highlight, traders opted for a wait-and-see approach earlier this week, with the pair dwelling in a tight range of approximately 100 pips for the last four sessions.
"It's been a bit choppy this week - it's a classic summer market and people are wanting to get a theme for the rest of the year but are maybe a bit wary of doing that before Yellen speaks today," said HSBC currency strategist Dominic Bunning.
On Friday, the EUR/USD fell 0.49% to $1.1224 after Yellen's speech, erasing its previous gains
In the meantime, several other FOMC voting members filled the headlines this week. Fed Vice Chairman Stanley Fischer, who praised the US economy performance, pointed out the strong labor market and inflation marching towards the Fed's 2% target.
Kansas City Federal Reserve (Fed) president and FOMC voting member Esther George also gave a hawkish speech, mentioning that it's time to raise interest rates. However, George still favors lower rates and gradual monetary tightening.
Finally, St. Louis Federal Reserve President James Bullard said he favors a single hike in the Fed funds overnight lending rate to 0.63 percent and a hold for about 2½ years.