Euro, EUR/USD Talking Points
- Euro has been rising on a weaker US Dollar, Brexit deal hopes
- Medium-term fundamental risks (Brexit) may weaken EUR/USD
- Recent progress undermined by a bearish candlestick formation
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Euro Fundamental Outlook
The Euro has been gaining ground against the US Dollar since prices bottomed in late September. A lot of the fundamental backdrop behind this has been a combination of Brexit deal hopes and rising easing bets from the United States. The latter has been driving the Greenback lower against its major counterparts following softer data outcomes in local manufacturing PMI and retail sales figures.
Yet, economic conditions in the regional bloc are still underwhelming and there remains plenty of uncertainty surrounding EU-UK withdrawal negotiations. Eurozone data outcomes have still been tending to disappoint relative to economists’ expectations as of late. This could pave the way for similar softer results later this week on Thursday in preliminary Markit Eurozone PMI readings for October – see below.
Upcoming Eurozone Economic Data
*All times listed in GMT
Stay updated on economic data outcomes on our calendar page !
Euro Eyes the ECB, Brexit Voting
On top of this, the European Central Bank (ECB) will have its October monetary policy announcement later in the day starting at 11:45 GMT. This will be followed by the last press conference with President Mario Draghi at 12:30, former IMF Head Christine Lagarde takes on the job beginning in November. Mr Draghi will likely reiterate the need for fiscal stimulus given the limits of monetary policy with deposit facility rates below 0.
Policymakers noted last week that they do not expect more easing in the coming months, underpinning the need for fiscal policy as Eurozone growth is projected to weaken to 1.1 percent y/y this year. Meanwhile, it remains to be seen if UK Prime Minister Boris Johnson can pass his Brexit deal through Parliament this week. As such, these risks may pave the way for fundamental weakness in the Euro over the medium-term.
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Euro Technical and Sentiment Analysis
Focusing on the EUR/USD daily chart, the pair left behind a Bearish Harami candlestick pattern. With a confirmatory downside close, this could pave the way for an unwinding of recent upside progress. Absent this confirmation, traders should note the rise above key descending resistance from June – red lines below. The Euro also recently took out a key psychological barrier between 1.1076 and 1.1110.
Meanwhile, the IG Client Sentiment report from October 21 showed that about 39.17 percent of EUR/USD traders remain net-long. This has been dwindling from about 75% upside bias from late Septemberas prices climbed roughly 2.5 percent, reflecting rising bets of a top. We typically take a contrarian view to crowd sentiment, but the combination of current readings and recent changes offer a mixed outlook.
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Taking into account fundamental, technical and IG Client Sentiment analysis, traders ought to take recent progress in EUR/USD with caution. A daily close above the Bearish Harami would invalidate this setup as the Euro looks to test August highs (1.1215 – 1.1250). Otherwise, a turn lower may see prices pressure near-term rising support from the beginning of this month – blue line on the chart below.
EUR/USD Daily Chart
Chart Created Using TradingView
FX Trading Resources
- See how the Euro is viewed by the trading community at the DailyFX Sentiment Page
- Having trouble with your strategy? Here’s the #1 mistake that traders make
- Just getting started? See our beginners’ guide for FX traders
--- Written by Daniel Dubrovsky, Currency Analyst for DailyFX.com
To contact Daniel, use the comments section below or @ddubrovskyFX on Twitter
