A week after hitting a new 2021 bottom of 1.1523, the EUR/USD duo finishes at 1.1600. The US greenback lost ground after a week of strong gains, despite the currency union being one of its weakest peers. Despite this, the Dollar has yet to peak.
Ongoing inflation expectations are expected to prompt the US Federal Reserve to begin trimming its enormous bond-buying plan as early as November. Increased US Treasury yields reinforce such fears, as do the US Dollar’s swings. High yields help a stronger Dollar. OPEC+’s refusal to increase output in small measures has contributed to global inflationary pressures. Supply chain constraints causing manufacturing disruptions have also contributed to higher pricing.
Pullback Is Not A Rate Increase
Fed policymakers appear undaunted by the recent disappointing Nonfarm Payrolls statistics. Overall, Fed officials hinted at imminent tapering. The transcripts of the previous meeting revealed that they may start cutting bond-buying in mid-November and conclude in mid-2022. While cutting facilities appears inevitable, raising rates is not. Powell & Co. have made it plain that removing financial assistance does not imply a rate increase.
Weak European data and statements from ECB officials hampered EUR demand. The ECB has not reduced its facility operations and remains accommodating. It is now the most dovish banking system, backed by macroeconomic data. The October ZEW Economic Sentiment Survey showed a severe decline across the EU. The August EU trade deficit showed a moderate seasonally adjusted excess of €11.1 billion.
Positive US Data Only Scratches The Surface
The US report was encouraging. The CPI rose 5.4 percent year on year in September, slightly higher than expected. In addition, the first unemployment numbers fell to 293K for the week ending October 8, while product inflation remained high at 8.6% YoY. Finally, September retail sales surprised the market by increasing 0.7 percent month over month, but the initial October Michigan Consumer Sentiment Index fell to 71.4 from 72.8, also falling short of expectations.
There will be few macroeconomic updates next week. Markit will release its preliminary estimates for its October PMIs for the European Union and the US next Friday. The US will announce September Industrial Production, housing statistics, and weekly jobless claims, while the EU will publish September inflation data.
EUR/USD Analytical Forecast
EUR/USD CHART. Source: Tradingview.com
Technically, the EUR/USD pair is unlikely to recover significantly. The weekly chart shows the pair trading in a narrow range between the 100 and 200 SMAs, while the 20 SMA stays considerably below the present level. Meanwhile, technical indicators remain bearish, indicating a lack of purchasing activity.
On the daily chart, sellers continue to surge near a bearish 20 SMA, while the lengthier averages continue to trend south way above it. But the RSI has already fallen flat at approximately 41, indicating the bears’ dominance. The pair finds instant assistance at 1.1520, then long-term static support at 1.1460/70. A breach below this reveals 1.1390. The pair has to recover above 1.1640 to continue its corrective climb towards 1.1800.