At the beginning of this week's trading, investors returned to buying the US dollar again as a safe haven amid the successive tensions in the world emanating from the oil-rich Middle East region. This stopped the EUR/USD pair’s recent attempts to move upward towards the 1.0600 level at the end of last week’s trading, and it settled lower around the 1.0530 support level at the time of writing the analysis. Overall, the EURUSD exchange rate has fallen for 12 consecutive weeks now thanks to an established downward trend, but recent technical developments indicate that this may be the week in which the losing streak is broken, especially if US inflation data on Friday comes out weaker.
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While EUR/USD is clearly under pressure, there have been some supportive signs in the latter half of last week, with the daily chart showing that a recovery from the bottom at 1.0448 could represent a turning point in the short term. Commenting on the performance of the currency pair. Sean Osborne, senior FX analyst at Scotiabank, says short-term technical indicators are bullish after the EUR/USD pair developed a “morning star” reversal pattern during the middle of the week.
The positive technical signal was confirmed by the strong gains during the latter part of last week and the recovery last Friday after the surprise decline that came on the heels of another strong US jobs report. However, with the EUR/USD still under pressure on a multi-week basis, it is clear that there is a lot of work ahead for the EUR to continue rising.
In general, it should be emphasized that the bullish setup here is short-term in nature and covers a time frame from hours to a few days. The overall picture remains weak due to strong gains in the US dollar. The dollar rose amid a rise in long-term US bond yields and weak market sentiment, all linked to the view that the Federal Reserve will be asked to keep US interest rates at high levels for an extended period.
But this trade can come back into action at any time and any bullish EUR/USD event should be viewed as a profit taking event in the opposite direction which is required to rebalance the market from previously extended positions.
Economic Outlook
The data calendar is unusually sparse in the Eurozone this week but we will be keeping an eye on some speakers at the European Central Bank (ECB) who may spark some interest. The US, on the other hand, is more interesting as on Wednesday we see the release of Producer Price Index (PPI) inflation figures which should give an idea of how price pressures are evolving in the country's factories. This is an important number because price changes here tend to lead to developments in the more important inflation index (CPI) in the future.
Wednesday also sees the release of minutes from the US Federal Reserve's September policy meeting, which could further fuel expectations for a possible US interest rate hike in November, although we would be surprised if it has a noticeable impact on the market. The market will want to see a number lower than the consensus to confirm that US price pressures continue to ease, despite the strong economy. The market is currently expecting US inflation to read at 0.4% on a monthly basis for September, which is a decline from August's reading of 0.7%. Beating expectations would reinforce “longer higher” expectations for US interest rate settings, which are ultimately a major source of support for the dollar at the moment.
Expectations for the euro against the dollar today:
- According to the performance on the daily chart below, the general trend of the EUR/USD currency pair is still bearish.
- Breaching the 1.0500 support again will support the bears to move towards deeper support levels, and the next ones will be 1.0460 and 1.0380, respectively.
- From the last level, it is better to think about returning the purchase without risk.
On the other hand, the general downward trend for the EUR/USD pair will not be broken without moving towards the resistance levels of 1.0660 and 1.0770, respectively.
The currency pair is not awaiting important and influential data. The focus will only be on statements by policy officials from both the European Central Bank and the Federal Reserve.
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