Why Did the Euro Fall Sharply Today?

Today (Thursday) has been a day of strong US dollar rebound against the Euro, based on weak German IFO numbers and technical dominoes on the charts.

Even ultra-gloomy US home sales and durable goods data couldn’t stop the technical bearish momentum of the Euro. The start of the spring season didn’t encourage new property sales in the US: Sales of new US homes fell in March to the lowest level in 16 and a half years, dropping by 8.5% last month to a seasonally adjusted annual rate of 526,000 units, the slowest rate since October 1991.

The average price of a new home in March also fell predictably, albeit by an astounding 13.3% compared to a year ago. This marks the largest year-over-year price decline since July 1970’s 14.6% plunge.

Another strong indication of a current US recession is the latest US durable goods data which fell 0.3% in March, worse than consensus. The last time orders fell for three straight months was from February to April of 2001, when the US was on the verge of the last recession.

What’s Dragging Euro Down?

The German IFO business climate index fell to 102.4 in April, worse than the 104.3 reading expected, and a decline from a prior 104.8.

Strong remarks against further Euro strength by Eurogroup chairman Juncker and ECB President Trichet also did no good to a Euro which failed to break successfully above 1.6000. Trichet said he notes more than ever that the US says a strong USD is in its interest, and said he is concerned about the implications of forex fluctuations for financial stability. Juncker said he would not like global forex reserve holders to shift currencies and the status quo is good.

Europe’s largest business lobby, BusinessEurope, said Thursday they didn’t like EUR/USD above a rate of more than 1.4000. “We have passed the pain threshold at $1.40. We are alarmed at $1.50. We are still in the rate of the 50s, so we are still alarmed,” Secretary General Philippe de Buck said.

Forex Trading

Putting all these together, EUR/USD sentiment is looking quite bearish as Euro bulls should become reluctant to shoot for 1.6000 for the time being, especially after EUR/USD failed to hold the 1.6000 level. EUR/USD fell over 200 pips to the mid of 1.5600 on triggering of stop orders as the currency pair lost balance below its up trendline. Next bear target possibly around 1.5600.

USD/CHF rose to a 6-week high, breaking above 1.0300, with next bull targets around 1.0370-1.0400, 1.0430.

Friday:

UK GDP 0830 GMT

U of Michigan confidence 1400 GMT

Comments

[atauber]

if the Euro starts going down then oil will also go down because it will become more expencive to change Euroes for dollers to buy OIL so Inflation will start going down whice will let the ECB lower intrest rates whice will push the doller still higher whice will bring OIL still lower whice....

[special1person]

Today's drop in the EURO is one "data point".

I learned in school, it takes 3 data points to make a "trend".

What's the slope of a single data point?

How many angels fit on the head of a pin?

[AmesTiedeman]

In 5 years the Euro will be 2.0000

[solarchampion]

What about solars?
beanieville.blogspot.c...

[richjoy]

Hopefully, the Fed will stop lowering the short term rate on Tuesday. The Euro is 'correcting' lower, partly on the assumption our rate cutting is over, or within 25bp of over. It has always been less a question of a strong Euro, and more a question of a weak Dollar.

[vreporter]

The key here for ALL anti-dollar proxies is the monetary policy shift by the Fed. That's what the market is telling us! The Fed has caught on and whatever help was available for financial institutions has been expended. They will pause here and shake out the anti-dollar proxies across all asset classes. That means US homebuilder stocks will take the next wave down - yet again. Among currencies, GBP will soften faster than the EUR due to cross sales.