Forex: EUR/USD Closes Below $1.3050 On Risk Aversion Environment

Includes: ERO, EU, EUO, FXE, FXY, UDN, UUP
by: FXstreet

The euro performed its second negative day of the latest nine sessions as the EUR/USD declined from low $1.31 levels to test intra-day minimum at $1.3020. The pair closed the day at $1.3040. The euro was hurt by the risk aversion environment as investors were concerned on China growth fears and the sad developments in Boston.

As Valeria Bednarik, chief analyst, reported, "the day started with oil and gold falling hard on Chinese disappointing GBP." Gold plunged around 8% to a two-year low at $1355/oz, the biggest single-day sell off since 1983. Risk aversion accelerated late in the U.S. session, when at least three bombs exploded in Boston in what's suspected to be a terrorist attack.

The shared currency remained trapped within the $1.30-$1.31 range at the beginning of the week. In the words of the TD Securities analyst team, the EUR/USD has been consolidating in the "mid $1.30 area over the past four trading days has slowed the bullish momentum that has built since the beginning of the month."

The sell off on the yen pared as the USD/JPY reached the 100.00 level and the U.S. Treasury warned Japan from weakening the yen. Thus the euro is no longer enjoining the situation and the problems in the euro-area persist. "The Troika's next Greek disbursement, Portugal's bailout review, and whether Italy can form a government will all be the regional focuses this week; but even further 'risk-off' trading could weigh on the single currency," adds TD analysts.

Heat Map euro dollar

As for the short time, the overall EUR/USD "bias has turned negative as the pair broke below the $1.3040 mark and struggles now to regain it," comments Bednarik. The EUR/USD is trading strongly bearish with indicators such as MACD, CCI and Momentum pointing bearish in the 1 hour chart. "$1.3020 stands as immediate support yet lose of the $1.2970 area should signal a return of the bears, with $1.2880 then [in] sight," concluded Bednarik.

According to Marc Chandler, euro upside remains intact above $1.3000. Chandler feels that a "convincing move above the $1.3115-20 area will signal the start of the next leg up that is worth at least another cent and maybe 2". Ideally, Chandler adds, the euro holds above the $1.3020 area, "but it may require a break of $1.30 to undermine the correction."

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