EUR/USD Daily Forecast – Euro Struggles to Gain from Support

The Dollar is at Critical Levels Into an Important Week

The week ahead promises volatility as several central banks are scheduled to meet. But while currency traders will be focused on the upcoming Fed meeting, there is also headline risk as the US resumes trade talks with China. Aside from the above, equities are expected to be volatile with about a third of the S&P 500 scheduled to report earnings in the week ahead.

Most analysts are expecting the Fed to cut rates this week, but the reaction in the market will tend to be based around forward guidance. Unless of course, the Fed cuts 50 basis points rather than the widely expected move of 25 basis points.

I think the most important take away from the meeting will be how the Fed views easing. If they present it as an insurance cut, the markets will probably pare bets on further rate cuts. On the other hand, they could signal the start of a new easing cycle. Although this does not seem to be very likely, at least at this time.

The dollar has been rallying ahead of the Fed meeting and most dollar bears will have a hard time holding their conviction going into the week. The dollar is nearing yearly highs while the inversely correlated EUR/USD is on the verge of breaking to a two-year low.

Technical Analysis

Support at 1.1118 has held the pair higher as seen on the hourly chart below, but rallies from the level are becoming increasingly shallow.

Last week, the pair faked below the level following the ECB meeting only to reverse higher. Sellers stepped in at resistance found at 1.1188. The fact that the pair returned all the way back to support, and has held there, suggests a general lack of buying here.

At the same time, most of the major currencies are at some form of notable support against the dollar to start the new week. I think it makes for tough tough trading because there isn’t strong technical evidence of a turn here. But at the same time, it might not be a good idea to front-run a break.

In the event EUR/USD breaks below the horizontal level at 1.1118, I think it might try and retest the lower bound of a trend channel that held it higher last week. This channel has contained price action and can be seen on the 4-hour chart above.

To the upside, if the pair can get above 1.1135 it would open up the upside a bit. The same resistance at 1.1188 from post-ECB remains in play.

Bottom Line

• Volatility is likely to rise this week with several risk events that stand to move the markets
• EUR/USD is at some major support, but there does not seem to be a lot of buying from the level.
• Resistance at 1.1188 was a hurdle after the ECB last week and remains key resistance in the early week.