A picture of the Brandenburg Gate with tourists in front of it. Image source: Bruno Coelho © 123RF.com
The EURUSD is currently establishing a broad bearish reversal, whose completion may take some time. Check out our latest comprehensive analysis of the pair to learn more about the current opportunities for contrarian trading!
Bearish sentiment on the EURUSD increased today following the publication of the latest economic sentiment data in Germany. The reported figures for June fell below the market expectations, thereby demonstrating persisting weakness - something that was alluded to in ECB's latest statement.
EURUSD 4H Price Chart. Image source: Trendsharks ©, created with TradingView.com
The underlying market sentiment on the EURUSD is gradually changing, mostly because of the strengthening of the dollar in the short term. The previous uptrend is evolving into a new downtrend, as can be seen on the 4H chart above.
The uptrend took the form of a 1-5 impulse wave pattern, as postulated by the Elliott Wave Theory. It was terminated at the major resistance level at 1.22400. Subsequently, the price action started developing the current downtrend.
It takes the form of a descending channel and behaves as per the expectations of the Elliott Wave Theory. The price action just finished establishing the second retracement leg (4-5) near the upper boundary of the channel, which would clear the way for the establishment of the final impulse leg (4-5).
Moreover, the latest reversal also occurred from the 23.6 per cent Fibonacci retracement level and the 100-day MA (in blue), which represents a major bearish confirmation.
If the price manages to break down below the 38.2 per cent Fibonacci and the 20-day MA (in red), it would then be able to target the 61.8 per cent Fibonacci. The latter serves as the upper end of a major swing low (point 2 of the uptrend).
A Major Disappointment for the Biggest Economy in the Eurozone
According to the Centre for European Economic Research (ZEW), the German economic sentiment index fell surprisingly to 79.8 index points in June, below market expectations for an uptick to 86.0 points.
German MoM Economic Sentiment Index. Image source: TradingEconomics.com
These findings resonate with a recent statement by Christine Lagarde, President of the European Central Bank, who stressed that medium-term and longer-term economic developments continue to signal a sizable discrepancy in the general pace of recovery in Europe.
The posting of such disappointing numbers just days before the June meeting of the ECB means that the Bank would almost certainly opt to keep its asset purchasing under the Pandemic Emergency Purchasing Programme (PEPP) at an accelerated pace.
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