EUR/USD forms a double bottom near 1.1100, with weak bullish RSI divergence emerging.
The Federal Reserve (Fed) and the European Central Bank (ECB) decided to keep their respective interest rates unchanged last week. However, both institutions are expected to raise the rates in December.
The Federal Open Market Committee (FOMC) Statement highlighted a “strong” economy, acknowledging at the same time that inflation “remains elevated”. During the press conference, Fed Chair Warsh did not provide clear clues regarding the Fed’s next move, and instead, he reiterated that the decision will be based on the economic data that will be released prior to the December rate meeting. At the time of writing, the CME FedWatch tool shows a 70% probability of a 25 bps rate hike in December.
Economic Calendar Highlights
The US midterm elections will conclude on Tuesday, possibly affecting the US Dollar and creating additional volatility.
The US Services Purchasing Managers’ Index (PMI) will be released on Wednesday at 3:00 pm GMT. This is not a huge market-mover, but it can have a notable effect on the dollar if the actual number differs from the forecast by a large margin.
The Bank of England (BOE) will announce its interest rate on Thursday at 12:00 pm GMT. According to consensus, the bank will raise the rate by 25 bps, from 3.75% to 4.00%. BOE Governor Bailey will hold a press conference half an hour later, at 12:30 pm GMT.
The main event of the week comes on Friday at 1:30 pm GMT in the form of the US Non-Farm Payrolls (NFP). This is the main gauge of labor market health and has a massive impact on the dollar because the Fed closely watches the NFP when deciding the next interest rate move. The Average Hourly Earnings and the Unemployment Rate will be released at the same time; together, the three indicators paint an accurate picture of the US jobs market.
Technical Outlook – EUR/USD
The pair travelled as low as 1.1100, but it bounced twice near that level, potentially signalling that the bearish move is losing steam. On the other hand, the euro bulls tried to take the pair above 1.1200 but could not sustain such a high price, so there is not a lot of bullish pressure.
The Relative Strength Index (RSI) is showing a weak form of divergence, where the price is making a double bottom but the indicator is making a higher low. This is a bullish signal but not a very strong one. If the pair moves above 1.1200 with a full daily candle, then the rally may gain some steam. A move below the double bottom at 1.1100 will open the door for a continuation of the downtrend.
EUR/USD tests the 1.1100 support zone for a second time, with bullish RSI divergence hinting at fading selling pressure.
