Nick Nasad
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EUR/USD: Deflation Fears May Bring Pair Down to 1.34-1.33

The EUR/USD is coming under renewed pressure to end the week on the back of inflation data showing that the overall CPI in the Euro-zone has fallen to an annual pace of 0.7%.

  • The move down through the 1.3515 support area opens up some interesting scenarios within the daily timeframe.
  • While a downchannel in the pair started after the break of an upward sloping support trendline that had been established throughout December, today's action breaks a trendline started back in late August.
  • Breaking through both a support trendline and horizontal support is a sign of bearish intent.
  • The pair can hit some near-term targets if it simply gets back to the levels seen in November including the lows at 1.34 and 1.33.
  • A retest of 1.3515 as resistance would be key to watch at the beginning of next week as a break above would give bears slight pause.
  • Still, with the disinflation/deflation story gaining lots of traction, and the possibility of action by the ECB to encourage inflation, money growth and bank lending looking more probable, the macro situation seems to be turning strongly in favor of the USD in the EUR/USD pair.