EURUSD Trampled by a Rampant US Dollar, Hits a Fresh 17-Month Low
Euro and US dollar:
- US dollar strength continues, and there may be more to come.
- German Q3 GDP may contract.
- Italian budget back in focus.
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EURUSD Under Heavy Selling Pressure
EURUSD has started the week heavily in the red with sellers taking the pair back down to levels last seen 17-months ago. Currently trading around 1.1250, EURUSD is being forced lower by continued strength in the US dollar with the US Dollar Basket (DXY) now at a 17-month high after breaking through noted resistance. The greenback is rallying on the back of strong economic backdrop with higher US interest rates expected over the course of the next 12-18 months. The Fed Funds rate is expected to be hiked by another 0.25% in December – the fourth such hike this year – while expectations are for the Fed to hike rates at least another three times in 2019.
US Dollar Index Daily Price Chart (May 2017 - November 12, 2018)
German Economy to Contract/Italian Budget Headlines
On the other side of the pair, the Euro is coming under pressure as the EU economic backdrop continues to weaken. On Wednesday, provisional German Q3 q/q GDP is likely to contract for the first time since Q1 2015. Expectations are for a reading of -0.1%, compared to 0.5% in Q2, while annual GDP is set to be nearly cut in half to 1.2% from 2.3%.
The next leg of the Italian budget saga will begin this week and again may force the single currency lower. The EU set the Italian government a deadline of November 13 to come up with a revised budget plan but ,as yet, Rome has refused to budge on its original, contentious, plan. While the budget row continues, Italian borrowing costs continue to creep higher with the 10-year Italian government bond now yielding 3.42%, over 300 basis points more than comparable German debt.
On the daily chart, EURUSD looks likely to test the important Fibonacci support level at 1.1187 with a break below 1.11095 opening the way to the 1.0810 – 1.0840 area.
IG Client Sentiment Data shows investors are currently 61.2% net-long EURUSD – a contrarian bearish signal – but recent daily and weekly positional shifts suggest that EURUSD may trade higher despite the fact that traders remain net-long.
EURUSD Daily Price Chart (May 2017 – November 12, 2018)
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