EUR/USD Daily Price Forecast – EUR/USD Turns Dovish on Increase in Selling Activity & Spike in USD Demand

The bias for the Euro has shifted to the bearish side in the past week, as markets turn cautious ahead of the ECB monetary policy decision due this Thursday. EUR was the most sold currency by non-commercial IMM accounts, bringing their short EUR positioning to the largest since March 2017. This was driven mainly by leveraged funds selling while asset managers were buyers. Global macro funds also sold EUR for the second week, while sentiment turned more bearish. Large short EUR positioning suggests that risk/reward may be skewed to the upside for EUR going into the ECB meeting, particularly if the ECB strikes a bullish tone on inflation and downplays risks to growth. Overall, the most crowded trade remains the US dollar. As of writing this article, the EURUSD pair is trading at 1.1444 down by 0.19% on the day. The EUR/USD ended on a weaker note at 1.1464 yesterday, reinforcing the bearish view put forward by the downward sloping 5-day and 10-day exponential moving averages (EMAs).

The EU’s Centeno Confident of a Budget Deal between Rome and EU

Further, the pair’s drop from the intraday high of 1.1550 to 1.1464 yesterday negated Friday’s bullish outside-day candle. As a result, the focus is back on the key support of 1.1422 – which is the 76.4 percent Fibonacci retracement of the rally from 1.1301 to 1.1815. The bearish technical setup will likely play out today as Italy’s populist government is not backing away from its plan to hike public spending despite stinging criticism by the EU. However, if the EU strikes a softer tone and/or Italy softens its stance, then the spread between the 10-year Italy and German bonds will likely drop sharply below 300 basis points, lifting the EUR higher. Eurogroup head Mario Centeno on Monday told Reuters that the latest messages from Rome and the European Commission over Italy’s 2019 budget are very positive and an agreement could be reached on the budget blueprint.

That said, only a daily close above yesterday’s high of 1.1550 would put the bulls in a commanding position. On release front today, Germany will release its September PPI, the EU will offer preliminary Consumer Confidence for October while the US will release the Richmond Fed Manufacturing Index for the same month, expected at 25 vs. the previous 29. Technical indicators in the 4 hour chart entered bearish ground mid-European morning yesterday and have held below their mid lines since then with the RSI still heading south, in line with additional slides ahead, particularly on a break below the mentioned 1.1430 level. The Momentum indicator turned modestly higher, rather following the price than suggesting the end of the downward move. Expected support and resistance for the pair are at 1.1430, 1.1400, 1.1365 and 1.1490, 1.1525, 1.1575 respectively.