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EUR/USD Daily Forecast – Euro Extends Losses, Support in Play

EUR/USD declined further to trade below the 1.0900 handle for the first time in more than two years. Although Euro manufacturing data came in weaker than expected, the pair is attempting to bounce as technical support has come into play.
Jignesh Davda

Euro Manufacturing Sector Continues to Weaken

PMI data out of Europe today showed the Manufacturing industry continued to weaken in September. Eurozone PMI data declined to levels not seen since October 2012 while the German Purchasing Managers Index dropped to a decade low.

In addition to the weak Manufacturing data, Eurostat reported a decline in the Consumer Price Index to 0.9%, marking the lowest reading in nearly three years. Inflation data plays a major role in central bank decisions and the already low CPI was part of the reason why the European Central Bank eased policy last month.

Despite the overall poor data, EUR/USD appears to be catching a bid shortly after the data releases with a notable technical support area influencing the exchange rate.

Last week, EUR/USD dropped below 1.0930 which is considered an important level. It previously held the pair high twice in September and the recent break reaffirms the downtrend.


Technical Analysis

Two things stand out in EUR/USD for the session ahead. First, the pair is starting to get a bit oversold. Second, there is a confluence of support that has come into play. Between these two items, I think there is potential for a bounce in the session ahead.

EURUSD Hourly Chart

The support confluence consists of a horizontal level at 1.0881 as well as the lower bound of a trend channel. This channel has contained price action since September 19.

While I do think we could see a bit of a recovery, I think it’s important to keep in mind that the pair is in a fairly strong downtrend. Further, it is trading at multi-year lows. In this context, expecting a counter-trend recovery carries some risk.

EURUSD 4-Hour Chart

There is potential for a retest of the major 1.0930 level. Beyond that, I see further resistance at 1.0945 which currently confluences with the upper bound of the mentioned declining trend channel.

If the pair continues lower instead, the next level I have my eye on to the downside comes in at 1.0862.

Bottom Line

  • EUR/USD is attempting to bounce despite weak manufacturing and inflation data.
  • There is a strong confluence of support at 1.0881.
  • Resistance in the session ahead falls at 1.0930 followed by 1.0945.
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