The Euro is preparing to grow

The EUR/USD pair continued to renew local minimums last week, by falling to the level of 1.36500 – the minimal mark since the end of February 2014.

Today, the EUR/USD pair is trading above the key level of 1.3700, by adding 0.2%.

The key factors which led to the weakening of the euro, are fears that in June the European Central Bank (ECB) could start its quantitative easing, or decrease key interest rates.

The weak paced recovery of the economy of some of the countries in the Eurozone, and also a low rate of inflation, are key for the ECB.

Inflation in the Eurozone ticked up to 0.7 percent in April (from March's 0.5 percent), but remains far below the ECB's target of just under 2 percent.


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The last economical statistic for the Gross Domestic Product (GDP) of the Eurozone also disappointed traders. In the first quarter of 2014, the GDP of the Eurozone expanded by 0.2%, the same rate recorded in the previous period, and below market expectations. The main part of the growth was provided by Germany (+0.8%), Spain and Belgium (0.4 percent each). The French economy was stagnant in the first quarter of 2014.

In contrast, the GDP decreased in the Netherlands (-1.4%), Estonia (-1.2%), Cyprus and Portugal (-0.7 percent each), Finland (-0.4 percent) and finally, Italy (-0.1 percent).


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However, before the ECB meeting, where Mario Draghi could introduce new stimulus, the euro has around 3 weeks to recover its losses, which took place in the first part of May, 2014.

We expect a technical rebound for the EUR/USD pair. The bearish divergence on the chart points to a change in the trend. The nearest resistance is located at the level of 1.37300. If this level is breached up with success then the euro could reach the following levels: 1.37750, 1.38200 and 1.38600.

Nevertheless, if the support level of 1.36500 is breached down, then the euro could continue its fall to between 1.36000 - 1.35700.


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The situation on the futures market points that the euro could start to grow in the near future.

According to the Commitments of Traders report of the US Commodity Futures Trading Commission last week, the net position of hedgers (blue on the chart) came to the positive area, and received 19,871.00 contracts. A significant increase of the net position of hedgers indicates that the market participants are expecting an increase of the EUR/USD rate in the next couple of weeks.


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The relatively low amount of net positions of large speculators (green line on the chart) also indicates that the EUR/USD pair could rise soon.

This information is an analytical review of Capital and FX markets. The material presented, and the information contained, is investment research and should in no way be considered as the provision of investment advice for the purposes of Investment Firms Law 144(I)/2007 of the Republic of Cyprus, or any other form of personal advice, which relates to certain types of transactions, with certain types of financial instruments.

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