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EUR/USD, EUR/JPY May Slide Lower Ahead of Euro-Area Inflation Data

EUR/USD, EUR/JPY May Slide Lower Ahead of Euro-Area Inflation Data

Daniel Moss, Analyst


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Euro Price Outlook, EUR/USD, EUR/JPY, ECB, Inflation – Talking Points:

  • Asian equity markets continued to gain ground on positive vaccine news.
  • Additional monetary easing from the ECB in December may weigh on the Euro.
  • EUR/USD rally running out of steam.
  • EUR/JPY eyeing a pullback towards the 200-day moving average.

Asia-Pacific Recap

Equity markets continued to climb higher during Asia-Pacific trade, with investors continuing to rotate into those sectors worst hit by the coronavirus pandemic on the back of positive vaccine news.

Moderna’s developmental vaccine – which uses the same mRNA technology as Pfizer’s vaccine - was shown to be 94.5% effective in protecting subjects from the novel coronavirus.

Australia’s ASX 200 index nudged 0.21% higher and Japan’s Nikkei 225 rose 0.42%, while S&P 500 futures dipped marginally lower.

In currency markets, the haven-associated US Dollar and Japanese Yen held relatively steady while the cyclically-sensitive AUD, NZD, NOK and CAD slipped lower.

Looking ahead, US retail sales figures for the month of October may prove market-moving alongside speeches from European Central Bank President Christine Lagarde and several members of the Federal Reserve.

Market reaction chart created using TradingView

Dovish ECB to Weigh on Euro

The Euro is at risk of losing ground to its haven-associated counterparts in the near term, as several members of the European Central Bank signal the provision of additional monetary stimulus in December.

“In light of the second wave of Covid-19 infections and renewed lockdowns”, Executive Board member Isabel Schnabel stressed the need for “further monetary policy support to safeguard favourable financial conditions and underpin economic activity in the face of a deteriorating growth outlook”.

This echoed comments from ECB President Christine Lagarde, who has previously stated that the central bank will recalibrate its various supportive measures in December after assessing “the success of the new lockdown measures in containing the virus”.

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Lagarde added that “while all options are on the table”, the PEPP (Pandemic Emergency Purchase Program) and TLTROs (targeted longer-term refinancing operations) “remain the main tools for adjusting our monetary policy”.

However, there is a miniscule possibility that the central bank may consider lowering interest rates further, after Governing Council Member Klaas Knot said that “we wouldn’t want to exclude any measure going into December”, when questioned on the matter in a recent interview.

Although this seems relatively unlikely, Klaas’ refusal to rule out further rate cuts may weigh on the Euro in the coming days if upcoming fundamental data significantly undershoots expectations.

Therefore, Euro-zone inflation data for October will be keenly eyed by investors, with disappointing consumer price growth figures probably intensifying easing bets and capping the Euro’s upside against the haven-associated USD and JPY.

DailyFX Economic Calendar

EUR/JPY Daily Chart – Confined Within Descending Channel

EUR/JPY daily chart created using TradingView

EUR/JPY rates may continue to slide lower after failing to breach confluent resistance at the Descending Channel downtrend and October high (125.08).

A daily close below the trend-defining 50-day moving average (123.66) looks likely to set the stage for a pullback towards key support at the 38.2% Fibonacci (122.23).

Pushing through that probably opens the door for price to probe support at the 50% Fibonacci (120.74).

Alternatively, a daily close above the 124.50 mark would invalidate the bearish price pattern and clear a path for EUR/JPY to probe the psychologically imposing 126 level and April 2019 high (126.79).

EUR/JPY 4-Hour Chart – Bull Flag in Play

EUR/JPY 4-hour chart created using TradingView

Zooming into a 4-hour chart however, suggests that EUR/JPY may be gearing up for an extended topside push.

Prices appear to be carving out a Bull Flag pattern, after retreating from the monthly high (125.13) and holding above support at the 50% Fibonacci (123.68).

Breaching above the 124.20 mark would likely validate the bullish continuation pattern and could generate a 2% surge from current levels to fulfil the measured move (126.50).

On the other hand, a break and hold below the 50% Fibonacci (123.67) may set the stage for a pullback towards the November 5 high (123.18).

EUR/JPY Bearish
Data provided by
of clients are net long. of clients are net short.
Change in Longs Shorts OI
Daily 17% 2% 6%
Weekly 54% -30% -16%
What does it mean for price action?
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EUR/USD Daily Chart – Struggling at Key Resistance

EUR/USD daily chart created using TradingView

EUR/USD rates also look at risk of a near-term pullback as buyers struggle to breach the resistance range at 1.1880 – 1.1900.

With the slopes of all four moving averages notably plateauing and the RSI failing to slice above 60, the path of least resistance seems to favour the downside.

Pushing back below the 1.1800 mark may neutralize buying pressure and generate a pullback towards the August low (1.1696), if sellers can clear support at the 50-DMA (1.1764).

Conversely, a daily close above the November 9 high (1.1920) would likely signal the continuation of the primary uptrend and bring the 1.20 level into focus.

EUR/USD 4-Hour Chart – RSI Divergence Hints at Pullback

EUR/USD 4-hour chart created using TradingView

Jumping into shorter-term price action bolsters the bearish outlook depicted on the daily timeframe.

Bearish RSI divergence, as price battles with key resistance at the November 16 high (1.1869), suggests that a pullback towards the 21-MA (1.1832) could be on the cards.

Breaching that would likely result in price challenging uptrend support extending from the monthly low, with a meaningful break below carving a path to test the 200-MA (1.17800).

Alternatively, pushing above 1.1870 may inspire a retest of the monthly high (1.1920) and open the door for EUR/USD to challenge resistance at the yearly high (1.2011).

EUR/USD Bearish
Data provided by
of clients are net long. of clients are net short.
Change in Longs Shorts OI
Daily 20% 2% 11%
Weekly 23% -31% -10%
What does it mean for price action?
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-- Written by Daniel Moss, Analyst for DailyFX

Follow me on Twitter @DanielGMoss

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