EUR Selling Continues

EURUSD remains under heavy selling pressure into the middle of the week. The latest eurozone data released today shows that bank lending to households in the eurozone rose by just 1% last month, this marks the slowest pace of lending growth since August 2015 and reflects the impact of the stark shift in ECB policy this year. Loans to households have fallen steadily as ECB rates have climbed on the back of the pandemic, moving from highs around 4.2% in October 2022 to the current 1% lows. Additionally, lending to companies was seen falling to its lowest level since December 2015.

Downside Risks – Dovish ECB Twist

The ECB was very clear about the downside risks facing the economy at the September ECB meeting. In particular, Lagarde noted declining household consumption as a key threat reflecting the impact of higher rates and elevated inflation. With loans at multi-year lows, the demand outlook remains very weak and as such, EUR looks vulnerable to further weakness near-term. With the ECB expected to hold off on any further tightening this year, the return of Fed tightening expectations is having a sharp downward impact on the pair and should continue to do so on any fresh US data upside this week.

Technical Views

EURUSD

The market has fallen almost 7% from the YTD highs, now trading back at levels last seen in March. Having broken below the 1.0785 level, the pair is now testing support at the 1.0515 level. Given the weakness in momentum studies, risks remain pointed lower with any rebounds likely to be sold into the 1.0785 level.