Advertisement
Advertisement

EUR/USD Daily Forecast – Euro Pares Gains From Friday’s Surge

By:
Jignesh Davda
Published: Aug 26, 2019, 08:41 UTC

After a sharp move higher on a shift away from risky assets on Friday, EUR/USD is easing lower to pare some of the recent gains.

EUR/USD

EUR/USD Sensitive to Shifts in Risk Sentiment

An escalation in the trade war between the US and China led to a jump in volatility on Friday. There was a small continuation of this sentiment into the weekly open, however, risk aversion seems to be fading into the European trading.

It was a clear shift in sentiment on Friday as bonds, metals, and the Japanese yen rallied while equities dropped. Tweets from the US president following the market close on Friday led to a further liquidation of risk asset during the weekly open, however, this sentiment was not sustained.

The single currency, commonly used as a funding currency for risk trades, has benefited from the liquidation. However, there does not appear to be much reason to believe that this will continue. The session ahead is likely to driven by risk sentiment. Keep in mind, sentiment can easily change depending on what the US Presidents twitter feed looks like today.

Friday’s speech from Powell and Thursday’s ECB meeting minutes have provided fresh views on where the two central banks stand, and therefore I think it is reasonable to believe that EUR/USD will continue to hold a strong inverse correlation with risk, at least over the next 24 hours.

On the economic calendar: US durable goods orders and a speech from Fed member Bullard.

Technical Analysis

The 100 moving average on a 4-hour chart seems to have triggered the price reversal in EUR/USD. As well, the 20-day moving average is in around the same area to create a bit of a confluence.

EURUSD 4-Hour Chart

A horizontal level of support found at 1.1118 has come into play in early trading. This level might trigger a bit of a bounce, but based on the downside momentum in the pair, sellers might look to cap rallies in around 1.1140.

As mentioned, risk sentiment has had a major influence on recent price action. Equities are catching a bid in early European trading. The reaction in stocks during the US equities open will be important for EUR/USD traders.

Bottom Line

  • Risk aversion is fading, as long as this continues, EUR/USD stands to decline further.
  • Support for the session ahead is seen at 1.1118 followed by 1.1100. Upside resistance is found at 1.1140.

About the Author

Jignesh has 8 years of expirience in the markets, he provides his analysis as well as trade suggestions to money managers and often consults banks and veteran traders on his view of the market.

Did you find this article useful?

Advertisement