- As at the close of last week’s trading, the exchange rate of the euro currency pair against the US dollar (EUR/USD) stabilized under downward pressure, stable around the support level of 1.0500.
- This confirms the extent of the bears’ control over the EUR/USD trend.
- The short-term technical picture facing the Euro has turned bearish once again, and all eyes are back on the downside in the coming days.
Euro/Dollar Expecting Important Data This Week
The euro-dollar exchange rate was gaining significant strength last week as the broader US dollar rally in recent weeks faded, thanks in large part to guidance from Federal Reserve officials that cooled expectations for further interest rate hikes. This optimistic tone of the markets stopped last Thursday with the release of US inflation numbers and the dollar quickly rose. Commenting on the performance of the currency pair, Matthew Wheeler, analyst at Forex.com, said: “the EUR/USD rose broadly during the first half of the week before reversing sharply to the downside following a slightly hotter-than-expected US CPI report and a weak Treasury auction, which led to higher interest rates.”
On the other hand, Sean Osborne, senior forex analyst at Scotiabank, turned bearish based on his assessment of the euro’s near-term outlook against the dollar. “The euro’s failure to push through the low 1.06 area with any real conviction this week indicates that the daily downtrend remains intact and could set the course for a retest of the mid-1.04 area or lower,” the analyst stated. “In general, the price movement has become weak again.” The analyst added, “The EUR/USD pair remains in a downward channel amid the general strength of the dollar - with the possibility of further downside this week.”
Turning to the risks of events in the coming days, the Eurozone is subject to German sentiment readings today, Tuesday, at 10:00 GMT, and the markets will be keen to know how to evaluate Germany’s future prospects, especially in light of the deterioration in activity. In this regard, we mentioned last week that the situation in the eurozone's economic engine has deteriorated to the point that economists at Deutsche Bank now expect a double-dip German recession. This is hardly bullish for the Euro.
Tomorrow, Wednesday, will see a final confirmation of Eurozone inflation numbers, and as this is an update to the initial release, we do not expect the markets to be too turbulent. All signs point to the European Central Bank (ECB) being prepared to pause its interest rate hike cycle, with Governing Council members last week citing the importance of pay data for the first quarter of 2024 in determining future moves.
The pause in interest rates, in general, deprives the euro of interest-rate channel support, especially against the likes of the dollar and the pound, whose central banks could raise interest rates again in 2023. There is a fair amount of data due from the US in This week, though, the impact of market-moving data has been somewhat reduced by last week's inflation release, which sparked some notable market moves.
In short, a hotter-than-expected basic services component of the inflation basket has investors betting that the Fed may have to raise US interest rates again, with December now favored. The data jolted the “higher for longer” interest rate trade back into life from a brief slumber, sparking a rise in US bond yields and the dollar. The question this week is how the data contained in this topic contribute or detract from it.
Tuesday's data includes US retail sales at 1:30 GMT, where the main index is expected to reach 0.2% on a monthly basis for September, with core retail sales expected at 0.1%. Tomorrow, Wednesday, US building permit numbers are expected to reach a total of 1.45 million and housing starts at 1.405 million. Overall, this data does not traditionally affect the dollar, but it will provide a good look at how the high interest rate environment will affect the sector. Throughout the week, there will be statements by a large number of US Federal Reserve policy officials, led by Bank Governor Jerome Powell.
Expectations for the Euro Against the Dollar Today
There is no change in my technical point of view, as the general trend of the EUR/USD currency pair remains bearish, and stability around and below the support level of 1.0500 confirms the extent of the bears' control over the trend and the preparation for a stronger downward move. The next nearest bear stops are 1.0455 and 1.0380, respectively, which are strong enough to push technical indicators towards strong saturation levels with selling. Today is the first important economic release affecting the performance of the Euro/Dollar. Over the same time period, there will be no reversal of the general downward trend without moving towards the resistance levels of 1.0770 and 1.0830, respectively.
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