The global currencies witnessed intense selling pressure on Monday against the dollar.
The EUR fell nearly a percent to 1.1730 and lost the 50MA. Monday’s Euro retracement logged the most significant daily drop since August. European equity markets closed lower across most of the region. Besides, the dollar continues to bid post-September FOMC meeting; finally, the dollar index closed above the 50MA for the first time since May 2020. We find a couple of reasons behind the sudden dollar strength.
Two catalysts strengthen the dollar:
NAB: In Australia, Deputy Governor Debelle on Tuesday will be quizzed about speculation that the RBA could ease policy further. The RBNZ meets Wednesday, and we expect the RBNZ to refrain from signaling any clear policy shifts. In the UK, BoE Governor Bailey will be asked (Tuesday and Thursday) how likely the BoE is to take rates into negative territory. Meanwhile, the Fed’s Powell testifies on Tuesday as politicians continue to debate the possibility of a 4th fiscal package.
Last week’s key event for the Euro was the ZEW indicator of Economic Sentiment in Germany and the Fed meeting. The economic sentiment has improved again in Germany, as per the ZEW latest release.
“The ZEW Indicator of Economic Sentiment has increased again, signaling that the experts continue to expect a noticeable recovery of the German economy. Stalled Brexit talks and rising COVID-19 cases could not dampen the positive mood. However, the still negative outlook for the banking sector reveals fears of a rising number of loan defaults in the coming six months,” comments ZEW President Professor Achim Wambach.
In our view, the latest Fed’s inflation view is limiting the dollar not to fall further. Since last week’s Fed meeting, our core focus has shifted from the EUR to Dollar.
Data review: Here’s our review of economic events last week that affected the Euro.
Data preview: Flash Eurozone PMIs set to array the Euro theme.
This week we will see flash PMIs for Eurozone and the US. These latest PMI numbers could reveal the third-quarter performance.
TECHNICAL VIEW
Time to buy some EUR?
Following the colossal rejection of 1.2000 in EUR, we are finally entering the near term major support zone. The series of lows in August should now become pivotal, and so if you are bullish EUR into event week, then this is the place to take a close look.
The lower area of 1.1710-1.1690 is likely to offer minor support ahead of today’s Powell speech and tomorrow’s Flash PMIs. But the price is expected to break below that support area in the near-term. The next downside levels to be watched at 1.1640 and 1.1500 in the next one week. If the price is moving higher, key resistances to watch out for are 1.1825 and 1.1900.
Is this the place to buy EUR? Due to the elevation of the risk-off mood, we focus on the healthy risk-reward ratio. In this case, around 1.1500 offers better risk-reward.
It is important to always keep in mind the risks involved in trading with leveraged instruments.
What is your Technical View?
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