EUR/USD Technical Analysis: Bearish Stability Amid Pressure

The EUR/USD is stable below the 1.1600 level to kick off the week as the bears retain control. Last week, the pair's losses extended to the 1.1524 support level, its lowest in many months. As I mentioned many times before, the economic divergence and monetary policy between the United States and the Eurozone will remain the constant pressure factors on any gains for the currency pair in the coming days.

On the economic side, the EUR/USD is trading influenced by the announcement that the European Trade Balance for August failed to match expectations on both a seasonally adjusted basis and a non-seasonal basis. Besides, the EU industrial production for August outperformed expectations (on an annual basis) at 4.9% with a change of 5.1%, while the equivalent (monthly) was in line with expectations of -1.6%. The German Harmonized Consumer Price Index matched expectations, annual and monthly, at 4.1% and 0.3%, respectively.

Initial jobless claims in the US last week exceeded 319K with a reading of 293K, while continuing claims for the previous week exceeded expectations by 2.675 million with a reading of 2.593 million. However, the PPI excluding food and energy came in below expectations, while the general CPI beat 0.6% (monthly) and 8.7% (annualized) by 0.5% and 8.6%, respectively.

On the monetary policy front, the factor affecting the currency market recently, Klaas Knott, a member of the European Central Bank's Governing Council, said interest rates will start to rise once global central banks begin to undo the most important stimulus programs in the first half of next year.

"You can assume that when interest rates will not go up again, the higher rate in the future will be 3 to 4 percent," Knott added on Sunday's WNL TV show. The Dutch central bank governor, who is considered one of the more hawkish members of the board, also said that he sees the current jump in inflation mostly temporary. He added: “It is important to determine whether this is a temporary phenomenon and disappears or not, and whether this becomes a risk and has secondary effects through higher wages and costs, which is not the case now. At this moment, we see that it is mostly temporary as our economy reopens after the Corona shock and the supply of products is not keeping pace with demand."

These comments precede a major debate in the European Central Bank as it prepares to move to post-pandemic stimulus at a time when it removes global peers, increasingly focused on the threat of a price spiral, in light of continued support. The Frankfurt-based central bank is expected to announce the next steps for its emergency bond purchase program in December.

Separately, Knot argued for a higher surplus value tax on homes in the Netherlands in an effort to cool home prices. He said homeowners would be compensated by tax cuts in other areas. Last week, he described the "excessive rise" in house prices in the Netherlands as a risk to financial stability, and argued that banks were not adequately taking into account the systemic risks inherent in the housing market.

Technical analysis of the pair

In the near term, and according to the performance on the hourly chart, it appears that the EUR/USD is trading within the formation of an ascending channel that needs momentum. As a result, the pair rushed near the overbought levels of the 14-hour RSI. Therefore, the bears will target the potential pullback profits around the 1.1590 support or lower at the 1.1567 support. On the other hand, the bulls will target short-term profits at around the 1.1633 resistance or higher at the 1.1657 resistance.

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. However, the pair recently bounced off trend line support to recover from the oversold levels of the 14-day RSI. Therefore, the bulls will look to extend the current rebound towards the 1.1705 resistance or higher to the 1.1806 resistance. On the other hand, the bears will target long-term profits at around the 1.1522 support or lower at the 1.1423 support.

EUR/USD

Mahmoud Abdallah
Mahmoud has been working fulltime in the Foreign Exchange markets for 12 years. Offers his analysis, articles and recommendations at the most renewed Arabic websites specialized in the global financial markets, and his experience gained a lot of interest among Arab traders. Works on providing technical analysis, market news, free signals and more with follow up for at least 12 hours a day, and aims to simplify forex trading and the concept of trading for his audience.