ECB Stimulus Speculation Drags Down Euro

Euro lost ground across the board on Tuesday amid speculation the European Central Bank will be forced to increase its stimulus measures while its counterparts in major economies like UK and Japan will be in a better position.

EUR/USD fell to a 4-month low of 1.3532 while better than expected industrial output data from the UK aided the drop in EUR/GBP to a 1-1/2-year low of 0.8062.

EUR/JPY fell to 11-day low of 138.48 and EUR/AUD fell to 1.4447, its lowest since 21 November last year.

EUR/USD has next support at 1.3507-23 region but that seems to be a weak one compared to the next level of 1.3477.

A break below that will take the pair to 1.3375, the 50% retracement of the rally from July last year to May this year. Then comes 1.3230, the 61.8% Fibonacci level.

Only a bounce back above the 1.3745 mark will resume the uptrend.

EUR/GBP is well moving along the lower band of the downtrending channel and therefore might see a bounce back from near 0.8030 as shown by the chart below.

But that seems to be a very weak one given the direction of monetary policy in both UK and Eurozone. Next important level on the downside is 0.7965.