Euro Dollar Outlook:
- EUR/USD Conflicted ahead of ECB meeting
- Fibonacci Support holds bears at bay
- Price action awaits high impact economic events
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Risk sentiment poised ahead of ECB and US elections
With less than a week before the much anticipated US presidential elections, risk sentiment shifted as Europe announced fresh lockdown restrictions throughout the Eurozone, increasing demand for the USD and other safe-haven currencies. With the economy already on a downward trajectory, hopes of a swift economic recovery have diminished as the number of Covid-19 cases continue to increase at an alarming rate, reiterating the fact that the pandemic is far from over. This puts an immense amount on pressure on the European Central Bank as Christine Lagarde sets the tone in today’s ECB meeting. Although the wait and see approach is expected to hold for now, any hints of future policy amendments may affect the direction of the Euro for the foreseeable future.
Meanwhile, there are a number of high impact economic events that are likely to be additional drivers for price action for the major currency pair, including the release of US Q3 GDP data today, followed by Eurozone inflation and GDP figures tomorrow.
EUR/USD Technical Analysis
From a technical standpoint, the EUR/USD weekly chart below highlights how price action has remained faithful to the Fibonacci retracement levels (between Jan 2017 low and Feb 2018 high), providing support and resistance for the pair.
Chart prepared by Tammy Da Costa, IG
Since recovering from March 2020 lows, the daily chart now shows how the Fibonacci retracement has formed areas of confluency, with recent price action trading in a range bound state. However, the Moving Average Convergence/Divergence (MACD), has crossed below the zero line, a possible indication that the trend may reverse towards the upside, provided that fundamentals are in line with expectations. Currently, as long as the support level holds at 1.17 (the 38.2% retracement level), upward momentum is still possible, with the psychological level of 1.18, holding as resistance.
EUR/USD Daily Chart
Chart prepared by Tammy Da Costa, IG
Client Sentiment
IGCS shows that, at the time of writing, 62% of retail traders are holding short positions in the EUR/USD. We typically take a contrarian view to crowd sentiment, yet traders are less net-short than yesterday and compared with last week. Recent changes in sentiment warn that the current EUR/USD price trend may soon reverse lower despite the fact traders remain net-short.
--- Written by Tammy Da Costa, Market Writer for DailyFX.com
Contact and follow Tammy on Twitter: @Tams707
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