The EUR/USD is trying to correct upwards after sharp selloffs that pushed it last week to the support level of 1.1563, its lowest in 14 months. The pair moved on investor sentiment and the prospect of raising US interest rates.
The EUR/USD found support at the major moving averages, hitting new 2021 lows last week, but it is likely to witness new losses if the US dollar renews its recently halted rally during this week. The euro only managed a tepid rally in the hours following September's inflation data which revealed strong increases in both measures of Eurozone price growth last Friday, likely because they did little to shift the ECB's monetary policy in a supportive direction for the euro.
“Profit taking could help the euro in the short term, but she warned of technical resistance at 1.1717 and 1.1807 before repeating a one to three week target of 1.1395 for the euro-dollar rate,” says Karen Jones, head of technical analysis for currencies, commodities and bonds at Commerzbank.
This comes after the euro fell against the dollar last week in response to the raucous cacophony of investor fears over what the three-digit percentage gains in natural gas prices might mean for the European economic recovery, and an ongoing response to the Federal Reserve's "tough" September policy.
Natural gas futures prices have risen 366% for 2021 and 494% in the twelve months to last Friday, leading some analysts to warn of spillover effects that could drive up household energy costs so far, cutting spending In other areas and directs a setback to the economy. However, these concerns are not limited to Europe only, as energy prices and supplies have also disrupted activity in both China and the UK, posing risks to the economic recovery in those countries while also helping the dollar to strengthen across the board.
“Global growth concerns are usually supportive of the dollar, but its recent rally also comes amid market recognition that the Fed may raise interest rates as early as late 2022, after the expected liquidation of the $120 billion per month quantitative easing (QE) program,” says Zach Bundle, co-chairman of Global Global Currency Analyst at Goldman Sachs.
That process of tapering off is likely to end around the middle of next year if announced at the end of the Fed's next meeting on November 3, which will be almost certain if Friday's US non-farm payrolls report is anything but completely beyond expectations.
Analysts at ING warned that the EUR/USD could fall to the 1.15 level if the market considers Friday's jobs report sufficient to meet the bottom line set by Chairman Jerome Powell at the Fed's September policy press conference. "It won't take a knockout, a very strong employment report," Powell said. It would require a reasonably good employment report" for him to join the "many" at the Fed who already view the moment as appropriate to begin to dislodge the economy and markets from supporting the policy of interest rate and yield suppression.
The median estimate in a Bloomberg survey suggests that the US economy created 500,000 jobs last month, which would be close to the middle of the range of numbers seen this year.
Technical analysis of the pair
The recent rebound attempts did not break the EUR/USD from its descending channel range, as is evident on the daily chart. There will be no chance for the bulls to dominate without breaking through the resistance levels at 1.1720 and 1.1830, which may move prices towards the crucial psychological level of 1.2000. On the downside, moving below the support level at 1.1600 will still confirm the continuation of the bearish outlook, and currently, the bears' closest targets are the support levels of 1.1555 and 1.1480.
The currency pair will be affected today by the announcement of the PMI readings for the services sector for the economies of the Eurozone, and then the reading of the US ISM PMI for services. Then, there will be new statements from European Central Bank Governor Lagarde.
