EUR/USD Support Broken, Lower Territory Eyed

by Bogdan Giulvezan

The Greenback is Moving! 

The US Dollar bulls have taken complete control, breaking support and threatening to take EUR/USD into lower territory. Currently trading around 1.1670, the pair is likely to continue going south, at least until profit-taking and bottom hunting come into play.

The Euro’s outlook doesn’t look very bright, mostly due to fears of a second COVID-19 wave, which would likely affect the economy in a negative way, erasing the timid economic recovery that has started in the EU. The bearish pressure on EUR/USD is also increased by risk-averse traders who see the US Dollar as a safe haven. That being said, I don’t expect to see a massive rally anytime soon but the current drop does seem a bit overextended, thus we may see a small bounce up before a stronger move may take place.

The Week Ahead

ECB President Lagarde is scheduled to speak Wednesday, September 30 in Frankfurt at the Watchers Conference hosted by the Institute for Monetary and Financial Stability. It is unclear how or if this public appearance will affect the Euro but volatility is often experienced when heads of central banks are speaking, thus caution should always be used.

Apart from the speech mentioned above, the Euro will have a slow week, without high-impact economic releases, thus all eyes are on the US Dollar and on the most important jobs data: the Non-Farm Payrolls. The report is due to be released Friday, October 2 at 3:30 pm GMT and expected to show a change of 900K compared to the previous 1371K. If the actual number will come above expectations, the greenback is likely to get another boost, mostly because job creation is vital for the economy and a leading indicator of consumer spending. At the same time, the US Unemployment Rate will be announced and expected to drop from 8.4% to 8.2%. Of course, a lower rate of unemployment is beneficial for the economy and thus for the US Dollar.

The Technical Scene

Strictly form a technical standpoint, the EUR/USD pair is prone to a small bounce up due to the overextension of price. The latest drop, started after the break of the bullish trend line and of the 1.1800 support level, is worth almost 300 pips, thus day-traders are likely to start closing their shorts, looking to take profit. This will in turn create a small retracement but the medium-term outlook for the pair is bearish.

The Stochastic has entered oversold for the second time in a short while, supporting the idea of a small bounce up but the MACD is showing bearish momentum. Expect a brief move up, which may find resistance at the recently broken level of 1.1700. If that level holds, it will turn into resistance and will push price lower. As always, keep an eye on the fundamentals and especially on the U.S. jobs data due to be released later in the week, as it can have a significant impact on price action.