At the end of last week’s trading, the record US dollar gains were temporarily halted, which allowed the EUR/USD currency pair to rebound higher with gains towards the 0.9870 resistance level, which closed trading stable around it. The pair is still facing weak factors, most notably the consequences of the continuation of the Russian-Ukrainian war and its direct threat to the future recovery of the eurozone economy, and thus the failure of the European Central Bank's policy to follow the same path of tightening the policy of the US Federal Reserve.
According to the economic analysis, the EUR/USD currency pair is trading influenced by the announcement that the EU Consumer Confidence in October outperformed the expected reading of -30 with a reading of -27.6. Prior to that, it was announced that the European ZEW survey of economic sentiment for October beat expectations at -60.6 with a reading of -59.7. From the US, initial jobless claims last week beat the expected 230K by 214K. Continuing claims for the period came in less than the expected number of claims of 1.375 million with a tally of 1.385 million. Elsewhere, the Philadelphia Fed Manufacturing Survey for October missed expectations at -5 with a reading of -8.7, while the current US home sales for September exceeded expectations of 7 million with 7.1 million.
This week, the European Central Bank will head to the region last visited in the run-up to the global financial crisis as it raises interest rates during what appears likely to be a recession. And in July of 2008, as the eurozone began to shrink by four quarters, the board raised borrowing costs for the first time in more than a year, only to reverse course shortly after the collapse of US investment bank Lehman Brothers. It caused unprecedented turmoil in global financial markets.
At this time officials are facing much higher inflation, fueled by the risks of a different regime, as the energy crisis sparked by the Russian war in Ukraine raises the cost of living and destroys economic growth. As with central banks from Canada to Colombia likely to tighten policy, the ECB's need to raise interest rates to prevent consumer prices from spiraling out of control will keep policymakers focused - even as the threat of a recession approaches ever closer.
Which is why, even as many economists now believe a recession has begun in the eurozone, they unanimously expect another massive 75 basis point rise on Thursday.
EUR/USD Technical Outlook
- In the near term and according to the performance on the hourly chart, it appears that the EUR/USD is trading within an ascending channel formation that needs momentum to complete the rebound.
- This indicates a strong short-term bullish momentum in market sentiment.
- Therefore, the bulls will look to extend the current gains to around 0.9875 or higher than the 0.9898 resistance. On the other hand, the bears will target a potential pullback at around 0.9835 or lower at the 0.9811 support.
In the long term and according to the performance on the daily chart, it appears that the EUR/USD is trading within the formation of a descending channel. This indicates a significant long-term bearish momentum in market sentiment. Therefore, the bears will target long-term profits at around 0.9740 or lower at the 0.9598 support. On the other hand, the bulls - the bulls - will look to pounce on potential retracements around 0.9987 or higher at 1.0118 resistance.
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