- The euro appears to have lost its lead against the US dollar, with this week's trade likely to lead to further losses for the single eurozone currency according to new studies.
- In the middle of an expected quiet start, the price of the euro currency pair against the US dollar EUR/USD moved stable around the 1.0772 support level, the lowest for the currency pair in almost three months.
- As we expected, the American bank holiday weakened investors' appetite for risk.
According to the trading of the last session from last week, the US dollar initially fell after the release of US non-agricultural jobs data with mixed results on September 1st, but quickly turned around and rose before the closing of the week's trading. This price movement confirms the futility of the bet against the US dollar in the current background and confirms the reason for the tendency of expectations this week in favor of more weak performance of the euro against the dollar.
In this regard, Kenneth Brooks, forex analyst at Société Générale, explains in detail an important technical development in the charts: "The euro is licking its wounds after falling 1.4% in two days and closing below the 1.0816 support level, which represents the 200dma after the announcement of the US NFP jobs numbers ". The analyst added by saying "The counterintuitive reaction to the rise in the unemployment rate in the United States on Friday showed no sign of abating in Asia at least in the forex currency market where the dollar is strengthening its gains." And "investors flocked to buy the dollar at its lowest levels against the euro."
The focus of this week's US data calendar is on the mid-week release of the ISM Services Purchasing Managers' Index for August. The markets are looking for a reading of 51 points, a decrease from the July reading of 52.3 points, with the possibility that the decrease will lead to an undermining of the dollar, and prove the opposite at any rate.
Moving on to the euro, the ECB's board members are also in focus, with the spotlight on ECB President Christine Lagarde and she will be flanked by Alderson and Lehn, all of whom should provide the market with guidance on what the central bank will do when it issues its decision in September 14.
Prior to that we had last week inflation data in the Eurozone which was, in general, stronger than the markets had expected, despite core inflation falling as expected. European Central Bank members are therefore likely to recognize the difficulty that high inflation still poses to the decision-making process, allowing them to lean towards raising the interest rate again in September.
But the members of the European Central Council must also admit that the economic data came in below the European Central Bank's expectations with the economy slowing faster than expected, which increases the chances of inflation falling sharply in the coming months. This would conflict with the interest rate hike in September, which increases the uncertainty about the next decision and means that the exchange rates of the euro can react significantly to both the final decision and the directions given by the members of the European Central Bank in the upcoming speeches.
At the same time, the two members of the European Central Bank's Board of Governors, Schnabel and de Guindos, will speak today Tuesday (13:30 GMT and 15:30 respectively), both of whom have given speeches in the recent past that tended to move the euro, so they will be closely watched by before the markets.
Thursday will witness the release of the gross domestic product for the Eurozone for the second quarter, where it is expected to announce a growth increase of 0.3% on a quarterly basis. The shortfall in the target would reinforce the narrative that the economy is suffering more than the European Central Bank expected, raising expectations that the central bank will cut interest rates in September to allow for the impact of previous increases. Meanwhile, the European Central Bank's interest rate decision and its guidance on future decisions will be an important moment for the euro next month.
Technical analysis of the euro against the dollar:
The price of the EUR/USD currency pair may be on the way down again, as the pair is forming a reversal pattern on the 4-hour chart. The price seems to have completed a complex head and shoulders formation and is currently testing the neckline. A break below the 1.0800 support area could lead to a decline as high as the chart pattern, which extends around 400 pips.The technical indicators point to more losses as well.
100 SMA below 200 SMA to indicate that the overall trend is still bearish or that support is likely to break rather than hold. The price is also moving below both indicators, so they can continue to hold dynamic resistance on the upside. The RSI has a lot of room to decline before it reflects levels of sell saturation or exhaustion among sellers, so selling may continue from here. Stochastic is already in oversold territory, so a shift to the upside could allow support to hold firm and lift EUR/USD into nearby resistance zones.
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