The Euro moved lower against most major currencies on Thursday although the data released continued to show that a modest recovery is still on track. Yields in the EU slipped against the dollar, in the 2-year space driving the currency pair to the bottom end of its current range. Syrian tensions remain elevated although it is becoming less likely that the US and its allies will strike in the near futures.

Syria tensions continue to dominate the headlines, but the pressure for an immediate military strike seems to have eased. Reports suggest that the UK Prime Minister David Cameron backed down from asking lawmakers for immediate support for a possible U.K. military strike on Syria. The United Nations inspectors continue to investigate what occurred and many want to see how this plays out before rushhing to judgement. France is also now stating that proof must first be presented to the UN before a decision can be made.

Despite this delay the dollar continues to remain bid as yields moving in favor of the greenback. The two-year yield differential between the EU and US, dipped after testing resistance near 10 basis points. The differential seems to be caught in a range between 10 and 30 basis points which has trapped the currency pair near the 1.34 level. The yield difference between two countries makes up the forward curve, which provides the borrowing cost for holding one currency over another.

EURUSD vs 2yr Bund-TBond Diff since 2010

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Economic data in the EU continue to point to a modest recover although the data out of Germany on Thursday was relatively disappointing. The German unemployment number climbed to 7,000 in August versus analysts’ expectations of a decline of -5,000. The unemployment rate printed at 6.8%, which was in line with expectations. The German Consumer Price Index printed at 0.7% year over year vs. 1.9% year over year in July.


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After testing resistance near 1.3450 which is approximately the highs seen in March and June, the EUR/USD currency pair moved lower back into a range between the recent highs and 1.32 (chart courtesy of Alpari). Support on the currency pair is seen near an upward sloping trend line that connect the lows in early and late August which comes in near 1.3260. A close below 1.32 would put the currency pair back in a range which is floored by 1.28.

Euros -

Euros –

Negative momentum has gained traction on the EUR/USD currency pair with the MACD (moving average convergence divergence) index generating a sell signal. This occurs when the spread (the 12-day moving average minus the 26-day moving average) crosses below the 9-day moving average of the spread. The MACD is a momentum indicator that measures the difference between two moving averages to reflect acceleration in price action. The MACD index moved from positive to negative territory confirming the sell signal. The RSI is pointing lower along with price action and is printing near 47 which is in the middle of the neutral range.

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