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Policy divergence pressures euro
Forex
06/20/2018

Policy divergence pressures euro

EURUSD dipped to late-May lows in the 1.1530 area on Tuesday amid a widespread risk aversion that fuelled the dollar demand. The pair has recovered partially since, but continues to trade with a bearish bias and remains vulnerable to further losses in the short term.

EURUSD dipped to late-May lows in the 1.1530 area on Tuesday amid a widespread risk aversion that fuelled the dollar demand. The pair has recovered partially since, but continues to trade with a bearish bias and remains vulnerable to further losses in the short term.

Despite the downside pressure on the single currency has eased somehow, and global investors have mostly shrugged off the trade-war fears for now, the downside risks in the pair still persist. The main reason behind the bearish outlook is the monetary policy divergence between the ECB and the Fed. Should the ECB officials confirm the dovish tone today, EURUSD could return to the previous lows and go even lower if Fed’s Powell will sound hawkish.

The technicals also point to the downside risks as the tone remains bearish as long as the pair is trading below the 1.18 threshold. The euro needs to get back above this level to regain the upside bias and try to derail the downtrend which remains in place. The immediate support comes at 1.1530.


By Helen Rush
Senior Analyst at Capital Markets

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