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Historical EUR/USD Tendency Around Monthly Opening Range in Focus

Historical EUR/USD Tendency Around Monthly Opening Range in Focus

David Song, Strategist

EUR/USD struggles to retain the advance following the lackluster US Non-Farm Payrolls (NFP) report, and the opening range for 2020 undermines the recent strength in the exchange rate as the near-term correction fails to produce a test of the August high (1.1250).

It remains to be seen if the Federal Reserve will respond to the slowdown in job and wage growth as Chairman Jerome Powell and Co. “believe that the current stance of monetary policy will support sustained growth, a strong labor market, and inflation near our symmetric 2 percent objective,” and the data may do little to influence the monetary policy outlook as “participants regarded the current stance of monetary policy as likely to remain appropriate for a time.”

In contrast, the European Central Bank (ECB) may take additional steps to insulate the monetary union as the Office of the US Trade Representative (USTR) insists that France’s Digital Services Tax is “unreasonable,” with the Trump administration looking to implement “additional duties of up to 100 percent on certain products of France.”

The threat of a US-EU trade war may force the ECB to adopt more non-standard measures as the Governing Council “stand ready to adjust all of its instruments, as appropriate, to ensure that inflation moves towards its aim in a sustained manner, and President Christine Lagarde and Co. may continue to push monetary policy into uncharted territory as the central bank struggles to achieve its one and only mandate for price stability.

In turn, EUR/USD may exhibit a bearish behavior in 2020 amid the deviating paths between the FOMC and ECB, and the opening range for 2020 undermines the recent strength in the exchange rate as the near-term correction fails to produce a test of the August high (1.1250).

EUR/USD Rate Daily Chart

Image of EUR/USD rate daily chart

Source: Trading View

The broader outlook for EUR/USD remains tilted to the downside as the exchange rate clears the May-low (1.1107) following the Federal Reserve rate cut in July, with Euro Dollar trading to a fresh yearly-low (1.0879) in October.

Keep in mind, the monthly opening range has been a key dynamic for EUR/USD in the fourth quarter of 2019 as the exchange rate carved a major low on October 1, with monthly high for November occurring during the first full week of the month, while the low for December happened on the first day of the month.

With that said, the opening range for 2020 casts a bearish outlook for EUR/USD and the correction from the 2019 low (1.0879) may continue to unravel amid the failed attempt to test the August high (1.1250).

The Relative Strength Index (RSI) highlight a similar dynamic as the oscillator snaps the bullish formation carried over from the previous month after failing to push into overbought territory.

Need a close below the 1.1100 (78.6% expansion) handle to open up the 1.1040 (61.8% expansion) region, with the next area of interest coming in around 1.0950 (100% expansion) to 1.0980 (78.6% retracement).

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--- Written by David Song, Currency Strategist

Follow me on Twitter at @DavidJSong.

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

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