The single currency was a big winner last week, and it managed to rise nearly 300 pips vs. the USD on the back of a weakened dollar. However, sellers finally came in at 1.2791 and we saw a retreat from these highs on Friday.
At the start of a new week the EUR has managed to get its groove back, however, since the US is out on a public holiday today, we view today’s move from 1.2620 – 1.2698 more as positioning than the market deciding to take a more positive view on the single currency.
Germany still a stumbling block for the EUR
The recovery in EURUSD on Monday could be eradicated on Tuesday when we get the latest German data. The ZEW survey for October is expected to fall heavily to its lowest level since September 2013. The risk could be to the downside, as the survey polls financial market experts who have lived through rising volatility in recent weeks and a 12% fall in the Dax index since the last survey in mid-September.
A weaker than expected ZEW on Tuesday could trigger another decline in EURUSD. Also worth watching from a fundamental perspective is ECB President Draghi’s speech on Wednesday in Frankfurt.
Draghi may use this speech as a chance to explain to Germany why he thinks the ECB needs to expand its balance sheet to EUR 1 trillion, although we know from Germany’s finance minister, who spoke at the IMF conference in Washington at the weekend, that the German government is not in favour of Fed-style QE.
Any sign of discord between the ECB and Germany could also weigh on the single currency.
The technical view:
Although EURUSD made another bullish attempt to reach 1.2680 earlier on Monday, we expect some light selling pressure to come in at 1.2700/10. The better tone to risk appetite (stocks are also higher) seems to be driving the EUR today, although, as mentioned above, there are plenty of fundamental risks on the horizon that could cut short an extension of the EURUSD rally. Some key levels to watch:
Resistance:
- • 1.2716 – the high from October 16.
- • 1.2743 – the 21-day sma.
Support:
- • 1.2638 – the 200-hour moving average. A break below this would be a bearish development in the short term.
- • 1.2605 – the low from October 10th.
- • 1.2583 – the low from October 7th.
Figure 1:
SOURCE: Please note that this is a Bloomberg chart and does not represent the prices offered by FOREX.com
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