Article by ForexTime

Europe’s economic backdrop  continues to erode, as the slowdown in German GDP in the second quarter could be the first of two that drive Germany into recession. Recent data releases have made this apparently a real possibility, with officials warning that economic activity failed to pick up in the third quarter of the year. For the Eurozone’s largest economy to escape a technical recession this year, it will need the currency to slide rapidly, but growth is likely to slow down again in 2015 and the risks are clearly tilted to the downside.

Draghi’s comments Wednesday did not add anything to the current central bank’s policy path and concentrated on technical  Draghi said “we cannot afford to have two, somewhat truncated and somewhat incompatible views of the world” referring to how the ECB saw the current global backdrop relative to his German colleagues.  Germany is very concerned about inflation at a time where prices are falling and growth is waning.

Yields continue to reflect economic weakness in the European largest economy. Germany sold 2-year notes at negative yields Wednesday. Germany sold 3.294 billion of 2-year Schatz notes with a coupon of 0.00% at an average yield of -0.06%, little changed from the -0.07% at the previous auction.

Traders will be focusing on the U.S. The retail sales report, which will likely feel the effects of declining gasoline prices.  The total notional value is the number used as total volume of gasoline, which multiplies the price by the volume, which lowers sales on a decline in prices.

The weekly chart of the EUR/USD shows that target support is likely 1.2040.  The currency pair is now consolidating in a tight range between 1.2620 and 1.2770.  Momentum on the currency pair is negative with the MACD (moving average convergence divergence) index printing below the zero index level.  The RSI continues to move higher but is still printing a reading at 26, below the oversold trigger level of 30, which could foreshadow a correction.

Article by ForexTime

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