EUR/USD Gets Some Respite, But Fed Speakers Add to Pressure

EURO TALKING POINTS & ANALYSIS

• EUR/USD held steady in data-light sessions for Asia and Europe
• Its downtrend from July remains very much in place
• Hawkish comments from US officials will continue to weigh

The Euro steadied against a broadly stronger United States Dollar in Tuesday’s Asian and European trading sessions. But the currency is like all other majors struggling with the prospect that the Federal Reserve could yet raise borrowing costs at least one more time this cycle in the face of stubborn inflation.

Minneapolis Fed Governor Neel Kashkari said in a speech latte in the global day that he expects rates to go up again this year.

“If the economy is fundamentally much stronger than we realized, on the margin that would tell me rates probably have to go a little bit higher and then be held for longer to cool things off,” he reportedly told those attending an event at the University of Pennsylvania’s Wharton School.

The US Dollar was already supported by the thesis that interest rates will likely remain at what by recent historical standards are extremely elevated levels. The clear prospect that they could yet go higher will only firm up sentiment toward the greenback.

For now that sentiment is so strong that the not-inconsiderable detail of a possible Federal Government shutdown can’t tarnish it. Euro bulls may be hopeful that a change there can bring the single currency some fundamental support against the Dollar, but there’s very little sign of that so far.

The Euro’s problem is that the market believes the Dollar’s home economy is simply better placed to continue to power ahead despite tighter monetary policy. For as long as the data support that case, the Euro seems likely to struggle.

Another Fed Hawk On Tap Tuesday

It’s problems could increase this session with Fed Governor Michelle Bowman scheduled to speak later. She’s already on traders’ hawk-watch list. Indeed, as recently as last Friday she said she expected that another rate rise will likely be appropriate and that, thereafter, rates will have to be held at ‘restrictive’ levels for some time.

A repeat of that prescription could see the Dollar gain further.

Wednesday’s session will bring some possible Euro-moving news in the shape of German consumer confidence numbers from market research giant GfK. But they’re likely to present only a very short-lived trading opportunity, acting as they will as warm-up act for the session’s main event, US durable goods orders for August. The headline there is expected to show a modest contraction of 0.5% on the month

EUR/USD Technical Analysis

Chart Compiled Using TradingView

EUR/USD has been heading lower very consistently since the middle of July and, assuming no let-up this week, is on course for its eleventh straight weekly loss.

The pair has fallen below the first and second Fibonacci retracements of its medium-term rise from the lows of last September to the peaks of July. The first point came in at 1.08817 and was abandoned at the end of August. The second, 1.06308, gave way on September 14, but remains quite close to the market.

For now the Euro is in a band last traded in February and March last year, which likely now offers resistance at 1.06944, (Feb 21’s high) and near-term support at 1.05205 (March 14’s intraday low).

If bulls can challenge the upper bound of that range, they’ll likely eye overall trendline resistance which currently comes in at 1.07124.

Near-term the pair looks unsurprisingly oversold, with the daily chart relative strength index just struggling to nose above the 30 level which suggests the process is becoming extreme. Bounces back up above the 1.06 handle could be seen as the market adjusts, but these are likely to be met with more selling in fairly short order.

–By David Cottle for DailyFX