There was a bearish start for the EUR/USD pair for this important week, with losses affecting the support level of 1.0530 and a rapid evaporation of the currency pair’s gains at the end of last week. It also reached the level of 1.0615, so the EUR/USD exchange rate could recover in the coming days, according to analysts who see room for more. If it dismantles recent oversold levels, the busy US data and events calendar this week should show a clear weakening in activity if any gains are to be sustained.
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So far, the US dollar remains dominant on a multi-week timeframe as markets respond to signs of continued US economic performance compared to the Eurozone’s performance, which has strengthened the advantage of US bond yields over their counterparts in the Eurozone. Fundamentals are further supported by the recent “risk off” tone in markets as investors fear global economic growth amid rising long-term bond yields in developed markets. Therefore, the extent to which these overarching themes will continue in the coming days will affect the direction of the EUR/USD. However, the pair remained strongly oversold last week and subsequent profit-taking and market rebalancing could continue over the coming days, favoring further recovery in the EUR price.
Commenting on the performance, Sean Osborne, a Forex expert at Scotiabank, says in a recent analysis of the pair that the technical analysis of EUR/USD in the short term is bullish: “Two strong days (so far) for the euro will hardly affect the ongoing selling that we have seen since the July peak.” But the euro is in the oversold zone and there is plenty of room to correct the recent losses, at least. The analyst added that the weekly candlestick pattern reflects a potential “hammer” signal that will support the impression of a lower level forming around the previous week’s test of the 1.05 support area. At the same time, gains may extend to 1.0675/1.0725. Support is at 1.0575/00.
The economic data and events schedule in the Eurozone will be light this week, with markets firmly focused on the United States of America as a large number of data releases are in focus. The US ISM Manufacturing PMI is scheduled to be released at the beginning of the week.
Federal Reserve Chairman Jerome Powell is then scheduled to speak in what could amount to the most important event of the week, provided it touches on monetary policy. Remember, it was Powell's message that US interest rates would remain high for an extended period of time that prompted the market to sell off US Treasuries, which in turn increased their yields in what was considered a negative market event.
For the US dollar, rising yields proved supportive. But will Powell say something that reinforces the message from the September 20 policy update, or does he strike a more “accommodating” tone in light of the recent move in yields?
If the latter is the case, the US dollar could decline further.
Today, Tuesday, the JOLT jobs numbers will be released, which should give an indication of how the US labor market is developing. We've already seen that last month's release sparked a market reaction, so we'll be keeping an eye on the August release. On the same day, the ISM Services PMI is scheduled to be released at 15:00 GMT, where the number is expected to come in at 54, which will be consistent with the continued and strong growth of the US economy. Such a result would not be surprising in itself, given that the issue of US outperformance is now well understood, and thus the broader market reaction would be less than expected. The week ends with the very important US Non-Farm Payrolls release which tends to give the final word on how the jobs market will develop. The headline is expected to hit 150K, and the beat will prove supportive of the US dollar as it is likely to support US yields as markets bet that the Fed has no choice but to go ahead with another rate hike in November.
However, any decrease from the target may lead to a decline in these expectations, which may lead to weakness in the US dollar ahead of the weekend.
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 is still bearish.
- Moving towards and below the psychological support level of 1.0500 confirms the extent of the bears’ strength and control over the trend.
- It also moves the technical indicators towards strong oversold levels, and the euro may remain.
- The dollar is under downward pressure until the reaction to the results of the economic data above, especially the US job numbers.
The closest support levels for the trend are currently 1.0480 and 1.0390 respectively, and it is best to think about buying from them without risk. On the other hand, according to the performance on the daily chart below, a reversal of the downward trend will not occur without the euro/USD moving towards the resistance levels of 1.0770 and 1.0850, respectively.