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Euro: door is wide open for further decline

The bloc currency is testing the area around 2013 lows at 1.2915/20, bogged down by the increased pessimism surrounding the euro area as of late - today exacerbated after the worst employment data release over the last twelve months in the bloc. However, it is fair to say that the ongoing USD rally is also hurting the EUR and is the main driver behind the intensified EUR/USD weakness as of late.

… US recovery continues to be the main threat for euro bulls

There seems to be a shift in investors’ perception of the rebound in the US economic activity. Not so long ago, every improvement in the American economy boosted risk appetite, thus supporting the euro and its risk-associated peers.

However, this trend apparently reverted direction in the last weeks, as market participants now perceive that every inch of better data in the US adds to the hopes that the Federal Reserve could halt or slow down its current QE programme, consequently pushing the greenback higher against its main competitors. In the case of the US labor market, although the 6.5% threshold in the unemployment rate set by dovish Fed’s board members is still pretty far away, nobody can denies at the same time that the sector is gathering traction almost every week. Proof of the above is the reaction to February’s Payrolls, which followed better weekly data from the Initial Claims and the ADP report.

In Euroland’s backyard, the single currency remains under pressure as well, and the last spark of distrust just arose after yesterday’s Italian auction showed demand below target and higher yields. The combination of the yet unclear scenario in the Italian government, recessive figures from the EMU industrial sector and increasing jobless rate in the region points to a tinderbox cocktail that strongly opposes to today’s ECB’s forecasts of improvement in the euro area from the second half of 2013. Somebody is either blind or does not want to see, which is even worse.

In the technical realm, the pair is navigating within the down-channel set from 2013 highs and testing yearly lows at 1.2915/20
The initial support now sits around the area of 1.2880/85, where converge the 50% Fibonacci retracement of the July 2012 – February 2013 upside and December lows, en route to 1.2680/1.2700 (November 2012 lows, 61.8% level and bottom of the channel).
Reinforcing the bearish sentiment, the RSI is not in oversold territory yet, indicating that further downside is still on the cards.

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