EUR/USD Analysis. Euro Struggles, 1,14 Could Be The Next Stop
The battle of the best economic projections between the ECB and the FOMC seems to have an edge for the second as the European CB remains cautious about the excess risk of inflation hike.
On Friday, the FED Chairman, Mr. Powell assured the on-track progress of the economic recovery in the US. Goals on employment and inflation were reached as was noted by the Chairman and other members of the Committee. These positive vibes from the FOMC curtained the fear of risk of rate hikes fueling the US Dollar to continue its climb. To quell worries of rate hikes, policymakers assured that the reduction of asset purchases won’t lead to rate hikes, at least until 2022.
Last week, the EU and German economic data were mainly red colored as the actual data released was not the same or above the anticipated. This fact weakens the Euro before the US Dollar, as these data clearly state that the ECB economic projections are inaccurate. Last week’s EU and German PMI data were below the anticipated. ECB President Christine Lagarde will have a speech. I do not expect to hear anything new rather than to hear from the President that there are some numbers which define the course of ECB on inflation, increasing energy prices are temporary. Speaking of energy, it is important to track where the deal with Russia will lead to (Nord Stream 2 gas pipeline).
Shortly after the speech of the ECB President Christine Lagarde, we are expecting a release of the US CB Consumer confidence data for September, which is expected to be higher than what was released in August. The FED Chairman will also testify to the economic projections before the Joint Economic Committee today. Although markets will be tracking speeches of both CB leaders, it seems like the course for the EUR/USD is set, US Dollar prevails.
From the technical point of view, EUR/USD is traded inside a downtrend channel. The price action of June 25 has formed an expanding ending diagonal pattern, which is yet to complete its formation.
Chart by TradingView
Correlating to the US Dollar index, there is a same expanding diagonal pattern, although faced the other way – upwards.
Even though the US Dollar seems to have a motive impulse towards 94.4 and 94.5, RSI is on the edge of the overbought level and signals a short-term correction. The vice versa is witnessed on the daily EUR/USD chart, whereas the RSI is near the oversold level, hence to balance the strength, EUR/USD might retest 1.17700 before it continues to proceed downwards to complete the correction.
Key support levels to watch herein are $1.16150, $1.15000 and an area between $1.14500 and $1.14200. It is important to note that MA100, MA200 and EMA50 are all above the priceline and act as a strong resistance, most importantly the EMA50 is right at $1.17700 which backs the strength of this resistance.
It is pretty much clear that the end of the correction is not yet confirmed and for the Euro to continue the uptrend the economic data from the EU has to follow the projections of the ECB and EUR/USD must close above the upper edge of the downtrend channel. Until then, EUR/USD is bearish.
For a look at all of today’s economic events, check out our economic calendar.