Talking Points:

- EUR/USD continues to hold in a key support zone, and with key drivers out of the U.S. combined with the release of ECB meeting minutes tomorrow can keep the pair volatile. If you’d like a video rundown, we discussed this topic in-depth in yesterday’s webinar.

- The U.S. Dollar is turning-lower after a bullish three-week run, and Non-Farm Payrolls looms large on the calendar for this Friday at 8:30 AM ET.

- DailyFX Q4 Forecasts have just been released - Click here for full access.

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The Euro and British Pound are higher on the morning, with both being driven by stronger-than-expected PMI prints released earlier in the day. Out of Europe, composite PMI came-in at the strongest level in four months, and services PMI printed at 55.8, which reflects the fastest growth in that data point in over six years. Out of the U.K., services PMI came-in at 53.6, beating last month’s print as well as this months expected print of 53.2.

Given that PMI is thought to be a leading indicator, both prints reflect further strength in each economy, and this can lead to stronger inflation for each respective Central Bank to contend with. We’re just getting started on this week’s data, however, and the latter half of the calendar carries some rather key prints. Tomorrow brings meeting minutes from the ECB’s most recent rate decision, and this should be interesting given the increased volume around stimulus exit that continues to circle around the bank. And on Friday, we get the big one with Non-Farm Payrolls out of the U.S. being released at the same time as Canadian jobs numbers (8:30 AM, Eastern Time).

Will EUR/USD Continue the 2017 Bullish Trend?

The first seven months of the year were largely bullish for the Euro. This was driven by investors attempting to front-run a potential stimulus exit from the European Central Bank; and up to this point, the ECB has been rather evasive with how, when, or where this might happen. As we’ve moved deeper into the year, as inflation has appeared to remain relatively stable, and as those PMI prints continue to highlight greener pastures ahead – markets have continually ramped-up their expectation for the ECB to make some sort of move before the end of the year.

EUR/USD Weekly: A Bullish 2017 as Pair Rallies to 2.5 Year Highs Above 1.2000

EUR/USD Holds Support Ahead of ECB Minutes: Will Bulls Respond?

Chart prepared by James Stanley

Much of this is driven by the ECB. The massive bond buying program that the Central Bank enacted in 2014, along with the negative rates that were instituted in 2015 have created a significant amount of liquidity in Europe. This created some pretty outlandish distortions, such as European junk bonds yielding less than U.S. Treasuries over similar maturities.

For much of this year, the ECB has evaded the topic of stimulus exit altogether, and this has forced markets to ‘guess’ when this might actually happen. At ECB rate decisions in April, June and July – when asked point-blank what the ECB planned to do with stimulus or whether the topic was even discussed – Mario Draghi responded ‘no,’ and said that the ECB hadn’t even talked about the topic. In April and June, this brought a couple of weeks of softness to the Euro, but in July, markets weren’t buying that as the single currency rallied up to fresh highs.

After getting another shot-in-the-arm at the Jackson Hole Economic Symposium, markets walked into September with the expectation of hearing something, anything from the ECB about what they were planning on doing with stimulus. But, a big nothing burger showed-up at the September rate decision, and focus then moved towards the final two ECB meetings in the year. With the current bond buying program set to expire in December, the large expectation is that we’ll hear what the ECB wants to do with the program before then. Deductively – that would mean the October meeting (Thursday October, 26th).

Tomorrow’s release of meeting minutes from the September rate decision may shed some light on just how firmly the ECB may be leaning towards actually doing something. EUR/USD continues to trade within a support zone that we’ve been discussing, as the area from 1.1685-1.1736 contains two longer-term Fibonacci retracements that have, at least so far, helped to hold up support. This zone had helped to carve-out the August lows in the pair, and yesterday’s support test produced a higher-low, which can help to open the door to bullish setups in the pair.

EUR/USD Holds Support Ahead of ECB Minutes: Will Bulls Respond?

Chart prepared by James Stanley

Just a few weeks ago we wrote about EUR/USD’s struggles above the 1.2000 level. With 1.2000 being a major psychological level, pricing-above this point on the chart can have a tendency to produce behavioral changes in a market, particularly a market devoid of a specific driver. Think parity on EUR/USD, but not quite as significant; and this is certainly something that’s appeared to show-up in the spot rate of EUR/USD over the past six weeks.

EUR/USD first approached 1.2000 in latter-August, during the bullish run that showed-up on the heels of Jackson Hole. After three more attempts to overtake the level failed in September, resistance showed at 1.2000 before bears took-over, driving prices down to the fresh near-term lows that were set just yesterday. But while that retracement was taking place, a few key levels availed themselves, and we’re highlighting one of those levels below around 1.1833. This was the previous swing-high before that fresh near-term low printed, and this also syncs up fairly well with a prior batch of short-term support that had showed up in mid-September. Breaks above this level open the door for bullish exposure in the pair.

EUR/USD Four-Hour: 1.2000 Proves Indomitable in September – Emphasis on 1.1833

EUR/USD Holds Support Ahead of ECB Minutes: Will Bulls Respond?

Chart prepared by James Stanley

If prices do not test above 1.1833, or if support in the zone from 1.1685-1.1736 does not hold, a series of levels underneath price action could be interesting for either short-side targets or potential higher-low support for the bigger-picture bullish move.

Drawing a Fibonacci retracement on this year’s bullish move shows confluence around 1.1685, as the nearby price of 1.1679 is the 23.6% retracement of this year’s topside run, while 1.1685 is the 23.6% retracement of the 2008-2017 major move in the pair. But this also highlights how our recent retracement is still relatively minor, as we have yet to test below the 23.6% level, and a deeper test can take place while the longer-term structure remains bullish in nature. On the chart below, we’re looking at potential support below our current zone, zeroing-in on the 38.2 and 50% retracements of this year’s bullish move.

The level around 1.1200 is particularly interesting, as this is the 61.8% retracement of the lifetime move in the pair, taking the low from the year 2000 up to the high of 2008. If a deeper retracement does develop in EUR/USD, this zone can be an idea area to begin watching for support to develop for the longer-term continuation of the bullish trend in EUR/USD.

EUR/USD Four-Hour: Subordinated Support Applied Should Current Zone Become Breeched

EUR/USD Holds Support Ahead of ECB Minutes: Will Bulls Respond?

Chart prepared by James Stanley

--- Written by James Stanley, Strategist for DailyFX.com

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