Bears Dominating EURUSD, Draghi Indicates Slower Growth Due To Brexit

On June 24th , the unexpected vote by 52% of Britons in favor of leaving the 28-nation trade bloc has pushed the global markets into a turbulent situation. The common currency, euro, dived in a brutal selloff as investors priced that a significant slowdown would engulf the eurozone economy as a result of Britain leaving the EU.

The commercial relationship between the UK and the 27 other EU nations is relatively close as exports to EU account for about 45% of UK’s total exports while the proportion of imports is around 53%, in volume terms. Hence, the “divorce” with the UK may cast a shadow on growth in the euro area.

However, since the start of this week, selling has slowed as traders take profits on positions initiated in the wake of UK referendum. This has been supporting the euro to recover slightly after a “never-seen before” decline.

At the first day of the EU economic summit, European Central Bank (ECB) Governor Draghi announced that the growth in the EU could be slower, between 0.3% to 0.5% over the next three years. The preliminary forecast for Eurozone growth, released at the beginning of June was was at 1.6% in 2016 and 1.7% in the 2 years to follow.

The two-day EU Summit will end on June 29. Further details and statements from the meeting are awaited. The greenback is falling for a second day today, after rising sharply on Friday, as investors rushed their cash from risky assets into safe-have ones amid rising concerns on a potential crisis following the results of the British Referendum.

In the first comment from FED officials since the shock vote in Britain last week, Fed Member Powell indicated that the US economy could face a drag on growth for some time as the job market has remained weak since April and strong recovery has still not been seen. Judging from his comments, markets are pricing that the FED may keep the US benchmark rate on hold until late this year. The odds of another rate hike in September or November are currently at 10.5%.

Later today, the Bureau of Economic Analysis will release core PCE Price index data in the US, with an expectation of an increase of 0.2% in May.

eurusd d1

Fig. EURUSD D1 Technical Chart

On Friday, the Euro lost ground against the USD to hit a low of 1.09101 – the lowest since March 10. Currently, this pair is moving indecisively around the area of 1.10597 after two days of rises. However, a smaller-than-average reading on the RSI (14), along with the two MAs hanging over the price chart, indicates that the bear is still overwhelming. The level of 1.11125 is acting as a solid resistance for the price.

Trade suggestion

Sell stop at 1.10426, Stop loss at 1.10942, Take profit at 1.09967

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