• Euro bulls to remain in control as long as it trades above 1.0990 levels.
  • Going into an interesting week
  • Broken out of the four-month bearish channel

A bullish trend could push the common currency towards 1.1200. Going forward, a sustained trade above 1.1200 may induce a rally towards 1.1250 its key resistance levels.

The common currency traded in a narrow range throughout the last week before closing down at 1.1079. Over the past couple of weeks, the EURUSD has been outperformed more than 200 pips. We have not seen such a significant bounce for nearly 14 months. The last considerable rally for three weeks happened in August 2018.

Data review: Last week’s flash PMI survey indicated that a downturn in Germany economy continues as employment falls for the first time in six years, and the Eurozone mired close to stagnation at the start of the fourth quarter, according to the IHS Markit.

  • Flash Germany Manufacturing PMI at 41.9 (Sep: 41.7). 2-month high
  • Flash Germany Services PMI Activity Index at 51.2 (Sep: 51.4). 37-month low
  • Flash Eurozone Manufacturing PMI at 45.7 (45.7 in September). Unchanged rate of decline
  • Flash Eurozone Services PMI Activity Index at 51.8 (51.6 in September). 2-month high.
  • Last week’s ECB meeting was uneventful to the financial markets. With the October meeting, Draghi’s era has come to an end.

Governing Council of the European Central Bank decided that the interest rate on the main refinancing operations and the interest rates on the marginal lending facility and the deposit facility will remain unchanged at 0.00%, 0.25%, and -0.50% respectively.

Data preview: After such a full PMI data week, the European economic calendar will be lighter in the week beginning. The focus of the week will be the events like continued Brexit saga and FOMC meeting (Wed). We may see some consolidation in EUURSD after a recent surge. In the absence of any significant data events and global cues, traders are waiting for the US labor market data.

FOMC meeting preview: Market participants believe the Fed is likely to deliver a third consecutive rate cut this week. We also expect the Fed will be most likely to chop rates on the back of disappointing data points since the September meeting.

In mid-October, price in a rate cut probability was 85%, now it has been increased to 90% rate cut at the October 30th meeting of the FOMC. What’s next is the key factor for the dollar bulls.

It looked like the fortunes of the USD have changed for a month, off 2.50% from Sep high. The key risk factor to the dollar index is probably the US labor market report, not the FOMC meeting. We expect USDX to remain traded in a narrow range between 95-99 levels.

Here is a gist of what analysts anticipate from Fed: 

  • Nordea markets re-assessing the three reasons the FOMC gave in July and September for cutting rates – i) signs of deceleration in economic activity, ii) prudency from a risk-management perspective, and iii) the inflation outlook. Analysts Morten Lund and Anders Svendsen said, “We think a rate cut is warranted.”
  • ING said, “we believe the Fed will take action. Assuming the economy continues to soften in line with our view, then the Fed will likely follow up with additional rate cuts in December and January.”
  • Goldman Sachs noted that “Our economists think the Fed is likely to cut once more at the October meeting before holding policy rates steady for the next year.”

TECHNICAL OVERVIEW

 The most exciting factor is that the common currency has broken out of the four-month bearish channel. As we highlighted a couple of times in our weekly articles, the risks of a new decline to supports located at 1.0925-1.0900 have eased dramatically. We may see some consolidation between 1.1250-1.1000 in EUURSD after the recent surge. We still prefer Buying the dips favors the trend.

The current bullish trend could push the common currency towards 1.1200. Going forward, a sustained trade above 1.1200 may induce a rally towards 1.1250 its key resistance levels. The key driver is probably the US labor market report, not the FOMC meeting.

According to the daily chart, the key resistance level is placed at 1.1125, 1.1200, and 1.1250. Flipside, significant pivotal level, which will act as crucial support, is placed at 1.1050 and 1.0990 levels.

It is important to always keep in mind the risks involved in trading with leveraged instruments.

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