One of the most hotly-contested concepts in the trading world is the (false) dichotomy between fundamental and technical analysis.
Fundamentalists argue that technicians are trying to “read the tea leaves” of squiggly lines on a chart, whereas technicians say that all the fundamental data is priced into the market or too unpredictable to trade. However, in a strange sort of truce, both fundamental and technical traders are in agreement on the EUR/USD right now, though rarely-talked-about sentiment traders are starting to ring the alarm bells.
Fundamentals: ZEW = EW!
Earlier today, traders got their first glance at the German ZEW survey for the month of August, and it wasn’t pretty. The index came out at just 8.6 vs. a consensus forecast of 18.2, marking the eighth consecutive weaker-than-expected reading from this leading economic indicator.
The figure has shed over 50 points from its high of 62 at the beginning of the year, and is now at risk of turning negative for the first time since 2012. The ZEW survey adds to the string of poor economic reports out Germany, which is typically seen as the engine of Eurozone economic growth. If the German economy continues to stutter, the ECB may have no choice but to institute outright QE sooner rather than later.
Technicals: Price Action is King
As you might expect after a string of weak economic reports, the EUR/USD’s chart is also painting a bearish picture. The unit continues to put in lower lows and lower highs on the daily chart, the textbook definition of a downtrend, while both the 50- and 200-day MAs are trending lower. At the same time, the MACD indicator is mired well below the “0” level, showing strong selling momentum.
The only potential concern from a technical standpoint is the potential divergence developing in the RSI indicator, which failed to confirm last week’s low in price. That said, the preponderance of technical evidence suggests that EUR/USD should remain under pressure in the days to come and that bears may look to target the 1-year low around 1.3300 next.