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Euro Outlook Bearish as EUR/USD Attempts to Target April 2017 Lows

Euro Outlook Bearish as EUR/USD Attempts to Target April 2017 Lows

Daniel Dubrovsky, Strategist

Euro, EUR/USD Talking Points

  • Euro under pressure ahead of ECB speech, German data
  • EUR/USD may fall on bearish-contrarian trading outlook
  • Clearing near-term support exposes lows from April 2017

Build confidence in your own EUR/USD strategy with the help of our free guide!

Euro Fundamental Outlook

The Euro has been battered this week by a combination of dismal regional economic data and US Dollar strength. Earlier this week, preliminary September Markit Garman Manufacturing PMI clocked in at 41.4 versus 44.0 expected and from 43.5 prior. A reading under 50 indicates contraction, and it was the largest of such since 2009. Keep in mind that Germany’s economy shrank 0.1 percent q/q in Q2.

Meanwhile, the latest economic data out of the United States and optimism in US-China trade talks drove relatively higher demand for the Greenback. New housing sales surprised to the upside while President Donald Trump excited investors about a potential trade agreement with China ahead of a key meeting in mid-October. Local front-end government bond yields rallied as traders cooled Fed rate cut bets.

Ahead, the Euro could be vulnerable to a speech from outgoing ECB President Mario Draghi. He may reiterate the need for highly accommodative monetary policy amid downside risks, global uncertainty and weak manufacturing data. This is while aggregate data out of the Eurozone continues to disappoint relative to economists’ expectations. Next week this will be tested once again with German retail sales and CPI data.

Follow me on twitter @ddubrovskyFX for updates on the Euro’s performance

Euro Technical and Sentiment Analysis

These events have helped to deliver the lowest daily close in EUR/USD since May 2017 on the chart below. Broadly speaking, the Euro has been in a steady descent since the middle of June, guided lower by a descending channel of resistance – red parallel lines below. Now, the Euro is attempting to break through the psychological barrier between 1.0926 and 1.0968 – earlier September lows.

Meanwhile, the latest IG Client Sentiment report from September 25 is offering a bearish-Euro contrarian trading bias. Traders are 16.61 percent further net-long than yesterday and 31.77% more compared to the previous week. Join me every week on Wednesday’s at 00:00 GMT as I discuss how you can use market positioning as another element in your market analysis.

As such, we may see EUR/USD continue pressuring near-term support and pave the way for a test of April 2017 lows. Positive RSI divergence is present however, showing fading momentum to the downside. At times, this may precede a turn higher or translate into consolidation. A daily close above descending resistance opens the door for a reversal of the dominant downtrend.

EUR/USD Daily Chart

Euro Outlook Bearish as EUR/USD Attempts to Target April 2017 Lows

Chart Created Using TradingView

FX Trading Resources

--- Written by Daniel Dubrovsky, Currency Analyst for DailyFX.com

To contact Daniel, use the comments section below or @ddubrovskyFX on Twitter

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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