EUR/USD reached new highs only to fall sharply as Italy’s budget came to the forefront. The issues are far from being resolved. PMI data stands out in the first week of Q4. Here is an outlook for the highlights of this week and an updated technical analysis for EUR/USD.
The Italian government decided on a budget deficit of 2.4% of GDP, higher than what the technocratic finance minister Giovanni Tria wanted, 1.6% and more than the EU wanted. The plunge in Italian stocks and bonds weighed heavily on the euro but the populists’ parties that govern the euro zone’s third-largest economy are not impressed. Core inflation disappointed with 0.9%. On the other hand, ECB President Mario Draghi was bullish on the prospects of core inflation rising up and on the acceleration in wages. In the US, the Fed raised rates as broadly expected and signaled four rises until the end of 2019. However, the removal of the words “accommodative policy” initially hurt the greenback. Fed Chair Powell’s optimistic message and his clarification that the outlook had not changed eventually sent the greenback higher. US data was mixed, yet mostly positive.
EUR/USD daily chart with support and resistance lines on it. Click to enlarge:
* All times are GMT
EUR/USD Technical Analysis
Euro/dollar made a move to the upside and temporarily breached the 1.1800 level mentioned last week. It then turned sharply lower.
Technical lines from top to bottom:
1.1915 was the low point in January and remains relevant. 1.1850 was the peak on June 14th, before Draghi sent the euro down.
1.1815 was the high point in September. 1.1750 held the pair no less than four times in July and remains a powerful level.
1.1720 is a veteran line that worked in both directions and it capped the pair in mid-September. 1.1650 was a swing low in late August and is very closely followed by 1.1615 which played a pivotal role.
1.1.1570 was the low point as September came to an end 1.1530 supported the pair twice in August, making it an important line. 1.1435 held the EUR/USD down when it was trading around the yearly lows.
1.1300 is a round number that held the pair in mid-August and also held the pair down in June 2017.
I remain bearish on EUR/USD
The Italian issues are far from being resolved and low inflation also weighs. In the US, the Fed remains on course to raise rates four more times until the end of 2019, and this supports the greenback.
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