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Euro Forecast: EUR/USD, EUR/JPY Key Levels, Risk of Setback

Euro Forecast: EUR/USD, EUR/JPY Key Levels, Risk of Setback

Justin McQueen, Strategist

EUR/USD, EUR/JPY Price Analysis & News

  • EUR/USD Driven to Rich Levels by Chinese Yuan
  • EUR/JPY Vulnerable to Setback Towards 123.00
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This week has seen a remarkably firm Euro as markets continued to price in a democrat sweep, which has largely been characterised by short USD trades. However, aside from the US election, factors that had supported the Euro have begun to the fade with headwinds facing the currency beginning to rise. That said, this hasn’t entirely been reflected in the price with the Euro trading at 1-month highs.

Reasons for Concern in the Euro

Interest rate differentials have been moving in favour of the USD since August with the 10yr spread widening more aggressively since the back end of September. Alongside this, as inflation risks for the Eurozone remain heavily tilted to the downside, expectations are being built in the that the ECB could look for a fresh round of stimulus by the end of the year. As such, focus will be on next week’s ECB meeting, which may lay the groundwork for policy action in December.

EUR/USD (Black) vs German/US 10yr Spread (Red)

Source: Refinitiv

Second wave of COVID cases across Europe is evident with several countries forced to renew lockdown measures, thus growth differentials look to also move in favour of the US over the Eurozone. In turn, tomorrow’s PMI readings will be of interest as they will take into account lockdown measures that have taken place in October. That said, the Euro looks to be trading at slightly rich levels against its major counterparts and thus remains vulnerable to set backs.

EUR Forecast
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EUR/USD Driven to Rich Levels by Chinese Yuan

EUR/USD: A factor behind the notable support for the Euro has been the Chinese Yuan going from strength to strength, as such, a slowing in the appreciation of the Yuan can be enough to curtail upside in the Euro. On the topside, resistance resides at 1.1900-15, where a break above opens the door to 1.1940-50. Initial support sits at 1.1830 (Oct 9th peak) with a move below opening the doors to 1.1790-1.1800. Sizeable option expiries between 1.1800-1.1900 could see the spot price remain within this range.

EUR/USD Bullish
Data provided by
of clients are net long. of clients are net short.
Change in Longs Shorts OI
Daily -16% 13% -9%
Weekly -21% 13% -12%
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EUR/JPY Vulnerable to Setback Towards 123.00

EUR/JPY: In light of the factors mentioned above, risks appear tilted to the downside in the cross with a move towards 123.00 on the cards. Once again the 50DMA (124.62) held firm after another failed attempt at piercing through, which in turn puts the focus on the 100DMA at 123.50. Below the 100DMA exposes psychological support at 123.00, marking the Oct 2nd and 15th bottom.

EUR/JPY Bearish
Data provided by
of clients are net long. of clients are net short.
Change in Longs Shorts OI
Daily 6% -10% -5%
Weekly 18% -30% -19%
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