EUR/USD breaks below its 200-hour moving average and falls further
The German ECB court ruling is the key catalyst but this just resumes the broader downtrend in the euro against the dollar since peaking out at the 100-day moving average above 1.1000 towards the end of last week.
Sellers leaned on the 100-hour MA (red line) earlier amid the mini-whipsaw and drove the euro lower amid a selloff in European bonds and stocks on the court ruling.
There are a lot of mixed undertones from the court ruling, as it represents a key risk if the Bundesbank is legally unable to participate in ECB monetary policy decisions. The key word there being if of course. The ultimatum is three months for the ECB to fix that.
The way I see it, it is yet another can kicked down the road but it does pose structural risks for the euro area and a problem for the ECB no doubt.
The other potential complication is what happens if this leads to legal challenges on PEPP?
Again, the key word there being if. But still, considering that PEPP has less strings attached i.e. no issuer limits then it is perhaps going to be deemed more “unconstitutional” than QE.
The uncertainty involved is helping to keep the euro lower, with EUR/USD even breaking through key near-term support @ 1.0869-72, notably the 200-hour MA (blue line).
That puts sellers back in control as the near-term bias turns more bearish now.
There is some support around the region of 1.0811-33 with the 1.0800 handle a key one to watch out for next as the bearish momentum builds.