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EURUSD Searches for Support Amid Growing Threat for Deflation

EURUSD Searches for Support Amid Growing Threat for Deflation

David Song, Strategist

Talking Points:

- USDOLLAR Rebound Gathers Pace on Less-Dovish Federal Open Market Committee (FOMC)

- Bullish Euro Momentum Wanes Amid Growing Threats of Deflation

Index

Last

High

Low

Daily Change (%)

Daily Range (% of ATR)

DJ-FXCM Dollar Index

10494.83

10504.92

10470.09

0.14

72.00%

USDOLLAR Daily

Forex_EURUSD_Searches_for_Support_Amid_Growing_Threat_for_Deflation_body_Picture_3.png, EURUSD Searches for Support Amid Growing Threat for Deflation

Chart - Created Using FXCM Marketscope 2.0

  • Retains Bearish Trend from July; Looking for Lower High
  • New Bullish RSI Momentum Taking Shape?
  • Interim Resistance: 10,519 (23.6 retracement) to 10,524 (38.2 retracement)
  • Interim Support: 10,290 (38.2 retracement) to 10,321 (78.6 expansion)

Release

GMT

Expected

Actual

Initial Jobless Claims (OCT 26)

12:30

338K

340K

Continuing Claims (OCT 19)

12:30

2870K

2881K

Chicago Purchasing Manager Index (OCT)

13:45

55.0

65.9

ISM Milwaukee (OCT)

13:52

53.00

57.10

The Dow Jones-FXCM U.S. Dollar Index (Ticker: USDollar) continued to gain ground against most of its major counterparts amid the positive developments coming out of the world’s largest economy, and the rebound may gather pace in November as the Federal Open Market Committee (FOMC) strikes a more neutral for monetary policy.

It seems as though the rebound from 10,354 will continue to take shape amid the renewed interest in the Fed’s ‘taper talk,’ and the USDOLLAR looks poised for a more meaningful correction as the Relative Strength Index breaks out of the bearish momentum dating back to July.

However, the bearish trend may continue to limit the topside for the reserve currency as the dollar continues to carve a series of lower highs paired with lower lows, and the greenback may face additional headwinds over the remainder of the year should the Fed show a greater willingness to carry its highly accommodative policy stance into 2014.

Forex_EURUSD_Searches_for_Support_Amid_Growing_Threat_for_Deflation_body_ScreenShot303.png, EURUSD Searches for Support Amid Growing Threat for Deflation

EURUSD Daily

Forex_EURUSD_Searches_for_Support_Amid_Growing_Threat_for_Deflation_body_Picture_1.png, EURUSD Searches for Support Amid Growing Threat for Deflation
  • Carves Higher High; Retains Bullish Trend From July
  • Bullish Relative Strength Index Momentum Falters
  • Interim Resistance: 1.3830 (61.8 retracement)
  • Interim Support: 1.3490 (50.0 retracement) to 1.3455 (50.0 expansion)

The Euro weakened across the board as the Consumer Price report highlighted a growing threat for deflation, and the single currency may track lower going into the European Central Bank (ECB) meeting on November 7 as the central bank continues to mull more non-standard measures to insulate the monetary union.

Indeed, there’s bets that the ECB will further embark on its easing cycle as it continues to operate under its one and only mandate to ensure price stability, and the Governing Council may even look to verbally intervene in the Euro in order to limit the downside for inflation.

As a result, the EURUSD may struggle to maintain the bullish trend from earlier this year, and the pair may a more pronounced downturn in the days ahead should ECB President Mario Draghi sound more dovish this time around.

--- Written by David Song, Currency Analyst

To contact David, e-mail dsong@dailyfx.com. Follow me on Twitter at @DavidJSong.

To be added to David's e-mail distribution list, please follow this link.

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