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Chart of the day: Can the euro bears be stopped?

The euro has been hammered with nine consecutive days of lower lows as poor eurozone economic data spooks investors who continue to funnel funds into the USD in a safe haven flee. We’re watching the 5 day EMA for a signal the steep bear trend is ending.

EURUSD daily chart

Poor data and fears of a coronavirus economic fallout have weighed heavily on the euro, which relies considerably on trade with China. Meanwhile the USD is relatively isolated to the outbreak and less dependent on global trade, so less exposed to an economic fallout in China. In this respect, the US, its currency and arguably its stock market, become a safe haven amid global uncertainty.

Markets have been betting on a euro recovery for some time now so this is not just a coronavirus story. It’s also a euro story: reality has kicked in that the assumed recovery has not eventuated. German Q4 GDP growth came in lower than expected on Friday at a dismal 0% growth.

EURUSD is heavily oversold at this point. The weekly Commitment of Traders report shows EUR net shorts at 85,669 contracts and in the 27th percentile of the 12-month range. The euro looks considerably oversold and counter-trend traders will be watching this one closely.

The pair opened higher in early asian trading today at 1.0823 but we won’t say the bear trend is over until we see a daily candle close above the 5 day EMA (red). So long as we continue to see daily candles close below the 5 EMA, EURUSD moves lower.

For gold traders, the lesson here is that you want to be trading an appreciating asset against the weakest currency. Long XAUEUR has been a golden trade during the EURUSD bear trend. If you were to take the view an asset was falling in value, you’d want to trade it against the strongest currency. Right now that’s the USD.

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