EUR/USD Price Forecast – EURUSD Rebounds From Monthly Low Owing to Modest Retracement in USD

The EUR/USD pair closed well below the key support of 50-month simple moving average (SMA) yesterday, signaling a resumption of the sell-off from the February high of $1.2556. The greenback surged across the board yesterday after the official data showed that pay for US workers rose 0.9 percent from July to September, pushing yearly earnings growth to the highest level since the 2008 recession. Meanwhile, the spread between the 10-year US treasury yield and its German counterpart increased to 278 basis points – the highest level since 1989. Both spread widening and hawkish US macro data resulted in EURO testing new monthly low as trading session came to close for the month. But the common currency has since made a bullish rebound and is currently trading at 1.1341 up by 0.26% on the day.

Stimulus From Sino-US Talks Could Help EURO Regain Upper Hand

The rebound could be attributed lingering support for common currency from yesterday’s positive Eurozone CPI data and a modest USD retracement from near 16-month tops as there seems to be no other major fundamental catalyst supporting the upward move of the pair. Today’s US economic docket highlights the release of ISM manufacturing PMI and will be looked upon for some short-term trading impetus ahead of this week’s other important macroeconomic releases, including the keenly watched NFP, scheduled at the start of a new month.  Meanwhile based on price action of the pair so far and given lack of fundamental support for EURO bulls and positive outlook for US Greenback, in short term the path of least resistance is on the downside.

However, despite bearish expectations the pair still has a chance to shake out weak bears if it manages to close above the 50-month SMA of 1.1370 today, as the European and the US equities are likely to cheer China stimulus talks. When looking from technical perspective, the recovery could be associated with the bullish divergence of stochastic on the hourly chart and could be extended further to 1.1397 –  a level which marks the confluence of the downward sloping 50-candle EMA on 4-hour and the descending trend line connecting Oct. 16 high and Oct. 22 high. A convincing break above 1.1397 is needed to confirm a temporary bottom has been made at 1.1302 and could yield a stronger corrective rally to 1.1433 (Oct. 19 low). A close below 1.13 would accentuate the bearish pressure around the EUR. The pair closed yesterday below the 50-month SMA, which is a bearish development.