EUR/USD Monthly Technical Analysis for September 2016

The Euro posted a two-side trade before finishing lower in August. The EUR/USD closed lower at 1.1157, down 0.0017 or -0.15%. The main driver of the price action was speculation over the direction of U.S. interest rates.

August started with the Euro continuing a rally which began in late July. Most of the move was attributed to short-covering after a successful defense of the post-Brexit bottom at 1.0951 on July 25. This move began to build momentum after the release of the Fed minutes for July suggested the Fed was not ready to raise interest rates in September.

The final drive for the month ended at 1.1366 on August 18. This corresponded with the release of the Euro Zone Final CPI yearly data which showed a read of 0.2% and the annual Final Core CPI which came in at 0.9%.

Both numbers hit the estimate, but that was the bad thing about the reports. The low inflation figures indicated that the European Central Bank’s quantitative easing program and negative interest rate strategy were no doing anything to help the economy grow. This led to talk that the ECB may have to tweak their stimulus packages as soon as September.

Near the end of the month, the EUR/USD began to weaken because of hawkish comments regarding the timing of the next Fed rate hike by several high ranking Fed officials. On Friday, August 26, Fed Chair Janet Yellen said the economy was strengthening, but she did not offer any hints that rates may rise in September. Fed Vice Chair Stanley Fischer said that two rate hikes in 2016 were “possible”.

September will begin with investors focused on the U.S. Non-Farm Payrolls report. A stronger than expected report may give the Fed a greenlight to raise rates. A weaker than expected report may take a September rate hike off the table.

On September 8, the ECB will issue its first monetary policy statement since July. Additionally, ECB President Mario Draghi will hold a press conference. Look for the Euro to weaken of Draghi comes off as dovish, but suggesting additional stimulus may be necessary.

TECHNICAL ANALYSIS

Technically, the main trend is down according to the monthly swing chart. A trade thorough 1.1616 will turn the main trend to up.

The short-term range is 1.0462 to 1.1712. its 50% level or pivot is 1.1087. Inside this range is 1.0539 to 1.1616.

Based on August’s close at 1.1157, the direction of the EUR/USD in September is likely to be determined by trader reaction to the pivot at 1.1087.

A sustained move over 1.1087 will indicate the presence of buyers. The first upside targets are 1.1259 and 1.1296. This is followed by a downtrending angle at 1.1456. This is the last potential resistance angle before the 1.1616 main top.

A sustained move under 1.1087 will indicate the presence of sellers. The monthly chart is open to the downside with the next target coming in at 1.0899. This is followed by 1.0719. This is the last potential support angle before the 1.0539 main bottom.

Watch the price action and read the order flow at 1.1087 all month. Trader reaction to this level will tell us if the buyers are still willing to support the market, or if sellers are taking control again.