• Weekly action suggests bullish reaction
  • 1100 is the key for bulls
  • Wave C of A-B-C corrective structure is still open

 The common currency rebounded last week, too, as the dollar underperformed on the elevation of the risk sentiment and weak macro data. Looking at the last week’s data releases, the economic index for the Euro area marks the lowest level according to Sentix.

Finally, on Friday, US-China truck a mini-deal that could pause the 15month long trade-war between the two powerhouses. Donald Trump suspended a tariff hike on 250bln$ of Chinese imports, which could take effect on Tuesday, Oct 15.

NBC News cited, “Trump claims China is already buying more U.S. farm goods.”

Thomas Harr at Danske Bank said, “The partial trade agreement reduces the risk of an all-out economic war between the U.S. and China. However, I believe the uncertainty will persist for companies closely integrated into global value chains, particularly those with a direct link to US-China trade.”

As we noted in last week’s article, the euro-cross EURJPY rallied to 120 level, on the verge of another breakout. A decisive breakout above 120.00 allows the cross to perform better in the near-term. On the flip side, the inability to sustain above this hurdle may result in a new wave down to 118.50 and 117.20. The future trend for the G10 currencies depends on What’s next on the trade deal? Although the mini-deal was wrapped on Friday, we still feel there are significant challenges for a done deal.

Besides, the Brexit deal also matters to EURUSD in the near-term. If E.U. and U.K. secure a deal before the deadline on Oct 31th, the common currency could outperform towards 1.1200-1.1250 levels.

Data review: 

  • According to the Sentix official report, “There is no positive reaction to the central banks’ aid measures, and economic assessments are broadly negative in October. “At -16.8 points, the Sentix overall economic index for the Euro area marks the lowest level since April 2013. For the eurozone, this falls by 6 points to a 5-year low, and for Germany, the value drops for the fifth time in a row at a rapid pace. Fears of a recession are imminent.

 Data preview: Looking ahead, the most significant data for the coming week is final inflation for the Euro Area. We will also get a German ZEW Economic sentiment, which could be the key driver for the common currency.

 TECHNICAL VIEW

The chart highlights the upside and downside scenarios set by the recent dollar weakness. It seems we’re heading to the key resistance level located at 1.1100.

As the daily oscillator remains solid and as the weekly oscillator has picked up markedly, the risks of a new decline to supports located at 1.0925-1.0900 have eased dramatically in the 2-3 days.

The common currency is facing stiff resistance at 50MA. The inability to sustain above 1.1060 may result in a retracement down to the support 1.0940. A decisive breakout above 1.1060 could allow the price to rally towards the resistance at 1.1100 and 1.1135 its 100MA. A break of these last barriers would give another move higher, paving the way for a more pronounced rally to the resistances at 1.1200 ahead of 1.1250 levels. 

As long as US-China trade tension, Brexit, and slowing economic momentum are the key driver, we don’t expect a significant rally on the common currency.

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

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