• Germany political uncertainty weighs EUR on Monday session
  • Retrace to the lower end of the consolidation range
  • Bullish views remain on EUR against JPY, CHF, USD and NZD

US dollar retraced this past week after the Federal Reserve announced Balance sheet normalisation will start in October. We believe tactical USD retracement in the near term.

Besides Flash PMI data from EZ, France and Germany beat expectations.

According to Chris Williamson, Chief Business Economist, IHS Markit “The eurozone economy ended the third quarter on a strong note, with growth of business activity picking up to its highest since May to register one of the strongest monthly improvements seen over the past six years. The data also point to rising price pressures, opening the door wider for a tapering of stimulus by the ECB”.

Politics back to the limelight. After German election FX markets are watching Spain referendum on 1st October.

Data review:

  • August 2017 EA annual inflation up to 1.5% and up to 1.7% in the EU.
  • In July 2017 the current account of the euro area recorded a surplus of €25.1 billion.
  • Economic Sentiment for Germany improved 7.0points in September 2017, now stands at 17.0 points.
  • ZEW Economic sentiment improved by 2.4 points to a reading of 31.7 points
  • Germany Flash Manufacturing PMI 60.6 vs. 59.3 August
  • Germany Flash Services PMI 55.6 vs. 53.5 August
  • EZ Flash Manufacturing PMI 58.2 vs. 57.4 August
  • EZ Services PMI 55.6 vs. 54.7 August
  • The ifo Business Climate Index fell in September from 115.9 points to 115.2 points

 Upcoming data:

  • Wed, Sep 27

M3

Barclays: We expect euro area M3 annual grow rate to edge up to 4.7% in August, supported by loans to the private sector rising 2.7% y/y, up 0.1pp from July.

  • Thu, Sep 28

Germany Gfk Consumer Climate

  • Fri, Sep 29

Flash CPI

Barclays: We expect headline inflation to edge up 0.1pp to 1.6%, supported by energy and food prices, while we forecast core inflation to ease to 1.1% from 1.2% previously, as we expect airfares to pay back at the end of the summer season.

 TECHNICAL VIEW

Following Germany election, EURUSD retraced back to the support base and re-tested the 50MA. Past one-month price pattern confirms the bearish H&S pattern formation (below chart). Neckline finds between 1.1820-1.1840. A move below this needed to retrace further South to 1.1800, 1.1770/1.1750 and 1.1700. The recent pullbacks are shallows.

Medium-term potential support finds between 1.1630 and 1.1590.

The overall trend remains bullish and the EUR strength likely to continue to the October meeting.

Bearish scenario: A daily close below 1.1660 near-term could shift the trend to mild-bearish, 1.1620/1.1600 and 1.1550 expected.

The daily RSI and Oscillator are sloping down.

A retracement in EUR crosses (EURJPY ,EURCHF  and EURNZD) are offering better risk-reward ratio.

View: EURUSD offers further legroom available in the near term.

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

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