Breaking News
Investing Pro 0
Ad-Free Version. Upgrade your experience. Save up to 40% More details

4 Reasons Why Euro Took A Hit

By Kathy LienForexAug 22, 2017 16:06
4 Reasons Why Euro Took A Hit
By Kathy Lien   |  Aug 22, 2017 16:06
Saved. See Saved Items.
This article has already been saved in your Saved Items

By Kathy Lien, Managing Director of FX Strategy for BK Asset Management.

After hitting a high of 1.1825, the euro sapped a two-day rally to end the day lower against the U.S. dollar. Unlike other major currencies, there were no less than 3 reasons why euro came under selling pressure on Tuesday. First and foremost, were it not for the U.S. dollar trading higher against all of the major currencies, we probably would not have seen EUR/USD turn lower. Eurozone data also missed expectations with the expectations component of the German ZEW survey falling to 10 from 17.5. Although investors feel good about how the German economy is performing now, they have not been this weary of the country’s outlook since October 2016. The expectations component of the Eurozone’s ZEW survey also fell to its lowest level since April 2017. Third, German yields were flat on Tuesday while U.S. yields were up significantly, which means the yield spread is pressuring EUR/USD lower. Last but certainly not least, the euro appreciated significantly this year and it is this very strength that makes investors nervous about how hawkish ECB President Draghi will sound at Jackson Hole. Looking ahead, Eurozone PMIs are scheduled for release Wednesday and the decline in the ZEW surveys along with the drop in the industrial production report puts the odds in favor of softer releases. For the most part, we believe EUR/USD peaked in early August at 1.1910 and the path of least resistance for the currency pair should be lower.

There are also a few reasons why the U.S. dollar is trading higher against all of the major currencies.
Investors were relieved that there wasn’t any fresh antagonism from North Korea and President Trump did not make any inflammatory comments in his speech overnight. U.S. yields ticked higher and should continue to do so leading up to Jackson Hole, where the central bank is expected to prepare the market for balance-sheet adjustments. As such, we expect USD/JPY to test 110. There were 2 pieces of U.S. data released Tuesday – the House Price Index and the Richmond Fed manufacturing index and neither were particularly market moving. House-price growth slowed slightly while manufacturing activity held steady. Markit Economics’ manufacturing, services and composite indices are due for release on Wednesday along with new home sales. Fed President and FOMC voter Kaplan is scheduled to speak Wednesday and based on what we’ve heard so far, he’s more concerned about inflation and believes the Fed should think twice before raising interest rates.

Tuesday's most important piece of data came from Canada.
Although retail sales growth slowed to 0.1%, excluding auto sales, they rose 0.7%, which was significantly stronger than the market’s 0.1% forecast. This was the healthiest first half-year performance for Canadian retailers ever, which makes the data good enough to support another rate hike from the Bank of Canada this year. Oil prices also rebounded slightly and most importantly, Canadian yields edged higher. So while USD/CAD bounced off its post-data lows, we firmly believe that it is poised to test and probably break 1.25. With no data on the calendar, the Australian and New Zealand dollars retreated against the greenback. Lower gold and Iron ore fines 62% Fe CFR Futures prices contributed to the move but that’s primarily a function of the U.S. dollar’s rally.

Sterling dropped to a 7-week low against the U.S. dollar.
Public sector finances and net borrowing were significantly weaker than expected but it was U.S. dollar strength that took the pair lower. Sterling had been under pressure since the Bank of England’s monetary policy announcement and the latest round of U.S. dollar strength was the straw that broke the camel’s back. Between the central bank’s ongoing concerns about Brexit, uneven data and the prospect of a stronger U.S. dollar, we would not be surprised to see GBP/USD drop to 1.2700, especially now that it broke below the 100-day SMA.

4 Reasons Why Euro Took A Hit

Related Articles

Kenny Fisher
CAD Rattled By FOMC, Risk Aversion By Kenny Fisher - Aug 19, 2021

The Canadian dollar is sharply lower on Thursday, as the currency has fallen to a four-week low. Currently, USD/CAD is trading at 1.2809, up 1.18% on the day. FOMC Signals Taper Is...

Blake Morrow
Chart Of The Day: CAD/JPY By Blake Morrow - Apr 07, 2021

CAD/JPY posted a false breakout last week above the 88.00 level. At that time, the divergent and overbought RSI suggested the pair would pullback. As we drop back towards the 61.8%...

4 Reasons Why Euro Took A Hit

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind: 

  • Enrich the conversation
  • Stay focused and on track. Only post material that’s relevant to the topic being discussed.
  • Be respectful. Even negative opinions can be framed positively and diplomatically.
  •  Use standard writing style. Include punctuation and upper and lower cases.
  • NOTE: Spam and/or promotional messages and links within a comment will be removed
  • Avoid profanity, slander or personal attacks directed at an author or another user.
  • Don’t Monopolize the Conversation. We appreciate passion and conviction, but we also believe strongly in giving everyone a chance to air their thoughts. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at’s discretion.

Write your thoughts here
Are you sure you want to delete this chart?
Post also to:
Replace the attached chart with a new chart ?
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
Comments (1)
James Ndirangu
James Ndirangu Sep 05, 2017 17:15
Saved. See Saved Items.
This comment has already been saved in your Saved Items
How do this app
Are you sure you want to delete this chart?
Replace the attached chart with a new chart ?
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.
Continue with Google
Sign up with Email