We have been bearish of the euro in recent articles and we have seen a decent sell-off to the downside but there is still far more downside to come in our view – our roundup of the sentiment fundamentals and technical levels below

 In terms of the euro, the big fundamentals and sentiment point to the downtrend continuing.

Sentiment COT Net Traders Positions 

The market remains bullish on the euro and speculators still have an elevated net long position while commercial smart money hedgers have sold hard – this divergence between speculators and commercials points to more downside ahead

Why are speculators so bullish on the euro? They believe that the ECB could hike rates at their next meeting which is discounted and the EU economy will avoid recession but it wont in our view. The data in our view points to a long and deep recession.

 Euro Zone GDP Data

The latest GDP data shows barely any growth and this will turn negative in the next quarter.

Eurozone PMI Data 

Today's PMI data a leading indicator in terms of GBP came in well below forecast today.

EU Money Supply and Lending 

In previous articles, we have also noted the collapse in bank lending to both businesses and households money supply has dried up due to interest rate hikes which is very bearish going forward.

The Slowup In China Hurting Euro Zone

The slowup in China also impacts the eurozone as China is a major export market, particularly for the biggest economy in the zone Germany.

Will the Energy Crisis Return? 

The energy crisis could also come back into play as we come to the winter months as natural gas prices are rising - the market is not focused on this possibility at all.

Eurozone done with rate hikes

The ECB is probably done with rate hikes the logic of TS Lombard below and 2 X Charts.TS Lombard's Oneglia notes: " Flash EA PMIs and German PPI continue to signal stagnation and disinflation ahead. Job markets remain resilient, but leading indicators of new hiring and wages soften. Ultimately, the next ECB decision depends on August CPI and new Macro Projections - Bottom line: hiking cycle is over." (TS LOMBARD)

In Conclusion

The USD has a yield advantage over the Euro which we think will remain in place in the near future. The US economy is robust and growth was 2.4% in the last quarter v 0.5% in the euro zone and leading indicators point to the US growing in the next quarter. Finally, we could get safe haven flows into the USD as the outlook generally in the global economy gets worse.

Technical Levels

Our view of the key technical levels of support and resistance to look out for on the chart below: