With contagion regarding Greece persisting along with much greater certainty regarding the potential timing of interest rate rises in the United States, I continue to maintain a bearish view on EUR/USD. Currently, I am short the currency pair via a limit order with entry set for a level of 1.1165, with a take profit level of 1.0941 and a stop loss of 1.1388.
In addition to the aforementioned macroeconomic factors, retail sales are reported to have rebounded by 1.2 percent which has further contributed to speculation that a rate rise could come as early as June 17 when the Federal Reserve is due to hold its next policy meeting. Moreover, consumer credit, average hourly earnings and non-farm payrolls have managed to beat expectations this quarter and this will likely allay prior growth concerns which had led to uncertainty regarding rate rises.
Meanwhile, in Europe uncertainty remains as to the fate of Greece and the euro currency. I had argued in previous articles that should Greece default and remain in the eurozone, then this could potentially be a worse outcome for the euro since contagion would still take hold across Greece given a default while the credibility of the European Central Bank will have been undermined.
However, given recent events it appears that this could well be a possibility. Following reports that Greece will miss an IMF payment, Standard & Poor's has cut Greece's sovereign credit rating further to CCC from a prior level of CCC+. It is now more likely than not that Greece will at least partially default on its debt obligations. However, the failure to reach a coherent strategy as to the course of events that will materialize should Greece default will continue to weigh down the euro going forward.
On a technical basis, the Relative Strength Index for the EUR/USD on a 1-week basis is currently trading just under a level of 50. Given that a level of 30 or below is traditionally seen as the point where a currency is oversold, then we could well see a breach of the 1.1165 level for a short trade to become active.
In conclusion, I see it as being likely that the EUR will continue to depreciate against the USD based on both technical and fundamental factors and an eventual level of 1.094 is looking increasingly likely.
Disclosure: The author is short EUR/USD VIA A LIMIT ORDER. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.