01 June, AtoZForex, London – With the Fed taking a more hawkish approach recently, the monetary policy divergence between the US and EU has come into focus and should weigh on the EURSUD once again. The following is Credit Suisse and CIBS bank technical and fundamental EURUSD analysis with arguments where to sell EURUSD.
Where to sell EURUSD
To add to the existing policy divergence downside pressure, just as the US economy is picking up, Euro zone data seems to be turning in the opposite direction. Although CIBC bank remains generally constructive, the composite PMI for May declined to 52.9, the lowest reading since the turn of 2015. This ignites some doubts about the effectiveness of recent ECB stimulus. The divergence in performance between Germany and other large Eurozone economies such as France or Italy has also widened once again.
Meanwhile the overall inflation backdrop remains soft. Inflation expectations are also low, with the 5y5y swap remaining below 1.5 percent. This weak growth and inflation environment keeps pressure on the ECB to consider additional stimulus, just as the Federal Reserve is moving closer to another interest rate hike, with markets anticipating July rate hike. “In light of these ongoing risks, the compression in net EUR short positions to only a quarter of the one-year moving average looks overdone,” CIBS added.
“As short positions get rebuilt, expect EURUSD to fall to 1.09 by September,” CIBC projected.
Source: CIBS forecast, where to sell EURUSD
Credit Suisse technical EURUSD analysis
Euro’s challenge of key support at 1.1097/1058 near the alignment of 200 day moving average, 50% retracement level, and price support has led to renewed buying for a correction higher, notes Credit Suisse.
However, “we view this as corrective in nature, and look for fresh selling to show on approach of 1.1217/43,” Credit Suisse projected.
A break below 1.1058 is needed to confirm further downside bias towards a trendline support at 1.0959/41 initially, ahead of the March lows at 1.0826/22. Nearest resistance level appears at 1.1187/90, with a break above 1.1244 level needed to ease the downside bias for a likely recovery towards 1.1297/301 area.
In line with the view, Credit Suisse runs a limit EURUSD sell order at 1.1215 targeting a move towards 1.1105 level.
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