Euro Clings To 1.3000 With ECB On Sight

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 |  Includes: FXE
by: FXstreet

The shared currency continues to waver at the rhythm of headlines and economic indicators, posting lower lows on daily basis against the dollar. Growing expectations the ECB will have to respond to fundamental weakness with a rate cut as soon as next week weighed on the shared currency but helped to support stocks.

Now it is Germany that is evidencing signs of economic deterioration, as this week's PMIs and IFO readings came in weaker than expected.

"The bearish sentiment surrounding the single currency may gather pace over the near to medium-term as we anticipate the European Central Bank to push the benchmark interest rate to a fresh record-low in the coming months", says David Song, analyst at DailyFX. "At the same time, the Governing Council may introduce more non-standard measures later this year as the governments operating under the single currency become increasingly reliant on monetary support, and we may see the ECB carry its easing cycle into the following year as the region struggles to emerge from the recession."

Fundamental weakness coupled with technical failure to break above the 1.3200 level has put EUR/USD on a downward path over the last week. However, the 1.2950 area has held bearish attacks leaving the cross outlook from neutral to slightly negative in the short term, favoring further consolidation within the 1.2950/1.3200 range.

However, a break below 1.2950 could see a deeper retracement toward the 1.2840/50 area, ahead of 1.2746, its 2013 low scored early April.

On the other hand, EUR/USD needs at least to regain the 1.3120 zone (38.2% retracement of 1.3710/1.2746) to improve the picture, while a confirmation above 1.3200 would pave the way toward 1.3340 (61.8% retracement of the same fall) as the next target.

In this regard, the UBS analyst team notes that Germany's weak ifo index reinforced expectations for a rate cut by the ECB on May 2nd. "In the U.S. a surprising fall of durable goods orders questioned the timing for tapering off the quantitative easing program", UBS says. "EURUSD remains hanging at the 1.30, but the change in European data should eventually weigh on the common currency, driving EURUSD towards 1.26".

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