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MENAFN- Daily Forex)
The previous weekend saw some recovery in the euro, suggesting that the dollar's appreciation trend may be nearing exhaustion. The EUR/USD losses last week reached a support level of 1.0761, the pair's lowest in three months, and the rebound gains did not exceed the 1.0840 level, stabilizing around 1.0810 at the time of writing this analysis.
Last Thursday's 0.42% gain was the biggest one-day gain since September 24 and had the potential to mark a turning point from the frenzied selling, with some chatter in the forex commentary that the selling has finally exhausted itself. However, Friday's price action was not inspiring, and the failure at the 9-day moving average suggests it is too early to call a turnaround/USD Technical analysis and forecast:
Accordingly, the next five days could see further weakness, with our initial target being the 1.0760 support level. If EUR/USD can manage a break above the 9-day moving average (currently at 1.0831), neutrality is likely to occur. Technically, this level is certainly close and achievable at the time of writing. Any subsequent consolidation would see EUR/USD return to the 200-day moving average, currently at 1.0869, which would act as resistance.
Moreover, that is as far as we are prepared to go when it comes to the upside, as we need to see a fundamental shift happen for a meaningful recovery to develop.
Aside from a technical perspective, a potential fundamental boost for the euro could arrive on Wednesday with preliminary October inflation data from Spain and Germany. It was the September inflation data for these two countries that sank the euro when it was released at the start of the month, leading to a rate cut by the European Central Bank two weeks later. Markets are expecting inflation to rise slightly by the end of the year, which could soften the impact on the euro if confirmed mid-week. However, any strength would be limited. On the other hand, any decline in inflation figures would only increase the belief that the ECB should be preparing for action, which could weigh on the euro.
Eurozone inflation data is due the following day, although recent history suggests that markets would normally take their cue from German and Spanish data the day before.
Overall, the US side of the equation will remain the more important driver, with Friday's US Labor market figures the highlight of the week. If the US non-farm payrolls component beats expectations, expect US yields to rise as markets lower expectations for the size of the Fed rate cut in the coming months.
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Obviously, this would strengthen the US dollar and lead to further declines in EUR/USD over several weeks.
Also, we expect the US election to be a major focus of the market during all of this. Moreover, what we have seen in recent days is that the odds of a Trump win are consistent with the strength of the dollar. The market is certainly holding at around 60% for a Trump win, and holding around this level could ease the downward pressure on the EUR/USD in the coming days. As such, we believe markets will remain nervous ahead of the vote, with uncertainty remaining high. Ultimately, this is fertile ground for the USD and can only add to the sense that the EUR/USD is biased to the downside.
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