NEW YORK (Best Credit) -- Over the last few weeks, currency markets have seen some abrupt changes from what's been seen most of this year. The main trends in the U.S. dollar have been bearish while most of the activity in the euro has been positive.
The EUR/USD forex pair came close to breaking 1.40 at its highs. But when we look at the fundamentals of both economies, this trend momentum has been highly questionable. The divergences between valuations and economic data help explain why the rally was followed by a strong reversal, which could be what ultimately defines the dominant trajectory for 2014.
Important issues like GDP figures, regional unemployment rates and dovish European Central Bank policy should continue to provide headwinds for those bullish on assets backed by the euro.
So if you have euro-backed assets, the outlook isn't good.
Chart activity helps to confirm this bearish outlook. The latest EUR/USD technical analysis report at ForexAbode highlights a variety of warning signals that should be watched. Perhaps the most closely watched factor discussed is the downside break of the 200-day moving average, which ultimately suggests that bearish momentum currently defines the market.
On the data side, the European Central Bank still has a series of issues that have not been totally resolved since the region's sovereign debt crisis was commanding a significant portion of the market's attention.
Some of the region's most heavily indebted countries (Greece and Spain, for example) continue to create a significant drag on the economic prospects for the region as a whole. Annual GDP rates suggest the eurozone is still at risk of falling back into recessionary conditions. The national unemployment rate in Greece hit highs of 28% before falling back to 26.5% for the month of February.
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