Euro Growth Limited Due To Political Headwinds

The EU report fueled optimism in the market. The reading significantly exceeded expectations, rising to 5.4% from 4.9%. According to the most positive forecasts, the figure was supposed to fall to 4.5%.

This report has shown that the EU economy remains resilient to economic woes. So, it is not going to lose momentum, maintaining its recovery. Notably, the market reaction to this data was rather muted. As a result, the was flat.

The fact is that its growth is limited by political headwinds, namely the migration crisis. Many migrants have been trapped on the border between Poland and Belarus. Brussels condemned Lukashenko for provoking the border standoff. Minsk denies all the accusations.

So, the political conflict between the EU and Belarus has escalated even more. On top of that, the European Union has threatened to impose new sanctions. In response, Belarus announced that it would choke off its transit of gas supply and other commodities to Europe.

The eurozone is now facing the biggest energy crisis on record. So, Belarus has leverage in this conflict. Fortunately, countries have just exchanged mutual accusations.

Moreover, over the weekend, the rhetoric of both parties has become softer, which indicates an attempt to avoid a further escalation. As political tensions are easing, the euro may start a correction. Analysts believe that this is the most likely scenario.

The euro has lost more than 160 pips against the over the past week. In the market, a strong price change in a short period of time is called inertia. Bears have already pushed the pair below several important levels.

Yet, the price keeps declining. Now, it is moving around the low of 2021, where the 1.1430 level acts as a support. The RSI indicator fell below the 20 levels in the 4-hour chart amid such a sharp price swing.

It indicates that the euro is now extremely oversold. The daily chart shows a change in the medium-term trend where the cycle that began in June is considered the main one.

Outlook

The price may rebound after a stagnation near the support level of 1.1430. If so, the euro may assert strength.

The subsequent increase in the volume of short positions may occur if the price fixes below 1.1400.

Technical indicators give a buy signal on the short-term timeframes amid the expected pullback. On the 4H and D1 charts, technical indicators give a sell signal.

EUR/USD price chart.

InstaForex Group

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