EUR/USD Volatility Spikes as the Bears Eye a Return to $0.9550

It was a busy start to the European session for the EUR. German Ifo Business Climate figures provided direction.

In September, the Ifo Business Climate Index fell from 88.6 to 84.3. Economists forecast a decline to 87.0. Sentiment towards the business outlook and current conditions also deteriorated.

The Business Expectations sub-component fell from 80.5 to 75.2, with the Current Assessment sub-component down from 97.5 to 94.5. Economists forecast declines to 79.0 and 96.0, respectively.

According to the September survey,

• In manufacturing, the index saw a sharp decline, with firms concerned with the outlook and less satisfied with current conditions.
• Sentiment across the services sector slumped, with company sentiment towards current conditions worsening. The outlook was also grim.
• In trade, the business climate deteriorated, with the business situation falling into negative territory for the first time since February 2021.

From the ECB, ECB members Luis de Guindos, Fabio Panetta, and ECB President Christine Lagarde will deliver speeches today. Lagarde will draw the most interest, with the ECB President speaking at the Hearing before the Committee on Economic and Monetary Affairs of the European Parliament.

EUR/USD Price Action

At the time of writing, the EUR was down 0.02% to $0.96847.

A choppy start to the day saw the EUR/USD rise to an early high of $0.97093 before falling to a low of $0.95526.

The EUR fell through the First Major Support Level (S1) at $0.9619 before a rebound to $0.97. In the early hours, the Second Major Support Level (S2) at $0.9551 limited the downside.

Technical Indicators

The EUR/USD needs to move through the $0.9736 pivot to target the First Major Resistance Level (R1) at $0.9803.

However, following today’s stats from Germany, the ECB will need to deliver hawkish speeches to support a return to $0.9750. In the case of a breakout session, the EUR would likely test resistance at the Friday high of $0.9852 but fall short of the Second Major Resistance Level (R2) at $0.9920.

The Third Major Resistance Level (R3) sits at $1.0104.

Failure to move through the pivot would see the EUR/USD retest the First Major Support Level (S1) at $0.9619. However, barring a market flight to safety, the EUR/USD pair should avoid sub-$0.9550. The Second Major Support Level (S1) at $0.9551 should limit the downside.

The Third Major Support Level (S3) sits at $0.9367.

Looking at the EMAs and the 4-hourly chart, the EMAs send a bearish signal. The EUR/USD sits below the 50-day EMA, currently at $0.98801. The 50-day EMA slid back from the 100-day EMA, with the 100-day EMA easing back from the 200-day EMA, delivering bearish signals.

A EUR/USD move through R1 ($0.9803) would give the bulls a run at the 50-day EMA ($0.98801) and R2 ($0.9920). The 200-day EMA sits at $1.00116. However, failure to move through the 50-day EMA would leave the EUR/USD under pressure.

The US Session

It is a quiet day ahead on the US economic calendar. There are no US economic indicators to provide the GBP/USD pair with direction later today. The lack of stats will leave the GBP/USD pair in the hands of market risk sentiment and any FOMC member chatter.

Monetary policy divergence and sentiment towards the global economic outlook support a DXY move towards 115 near-term. Direction is unlikely to shift until a marked deterioration in US labor market conditions and a sharp slowdown in consumption.