For the past few days, the euro has been falling due to two main reasons: Russia’s demand to pay for gas in rubles and macroeconomic data. The latter mainly refers to the US, where recent reports regularly show improvement in the country's economic system, while the data from the EU keeps disappointing the market.
Notably, during the European session, the market is primarily quiet, but with the start of the US trade, the single European currency is rapidly losing ground. European traders are at a loss and do not know what to do, while US traders have already chosen a direction.
The same scenario happened yesterday. And again, the energy issue was in focus. This time, it is not about gas. The European Union is considering imposing a ban on coal imports from Russia worth €4 billion. This makes up almost a third of all coal supplies from Russia to Europe.
As soon as this news appeared in the global media, investors began to wonder how the EU would replace these coal supplies. Europe is already suffering from soaring fuel and energy prices. So, a decrease in coal imports will only make things worse.
The new package of sanctions is expected to be announced today or at least tomorrow. Any delay in the decision will worsen investor sentiment as any uncertainty weighs on the market. So, if no decision is made today, the single European currency will remain under pressure.
Another bearish factor for the euro is the data on the producer price index which was expected to rise to 36.0% from 30.6% in February but came out at 31.4%. The producer price index serves as a leading indicator here, so its effect will be visible only in a couple of months.
In other words, inflation in Europe could continue to accelerate. The European Central Bank refuses to take any action to curb the growth of consumer prices. On the contrary, its current policy only contributes to rising prices that have already reached levels that are destructive to the economy.
After taking a short break near the local low from last week, EUR/USD resumed its decline. This resulted in a rapid increase in the volume of short positions, and the pair ended up below 1.0900. So, the scope of a correction from the support level of 1.0800 turned out to be more than 78%.
The RSI technical tool is moving in the oversold area on H4, signaling that the euro has been largely oversold. The RSI on D1 is holding at 30/50, which suggests a further euro decline in the near term. The Alligator Indicator on H4 and D1 confirms a downward cycle as the MAs point down.
Outlook
Despite the oversold status of the euro, bears are still in control of the market. Consolidation below 1.0900 may facilitate a further downtrend of the euro towards the support level of 1.0800. Alternatively, the price may pull back from 1.0900 to 1.0950, resulting in a change in the market sentiment.
Comprehensive indicator analysis confirms the sell signal on the short-term, intraday, and medium-term periods due to a strong downward movement.
