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Sep 22 - 11:55 AM

EUR/USD - COMMENT-EUR/USD Break Lower Appears Likely As It Probes Key Support

By Christopher Romano  —  Sep 22 - 10:20 AM

EUR/USD failed to benefit from improving risk sentiment as dollar demand, dovish central bank talk and a deteriorating chart outlook indicated it was increasingly likely to break below the big 1.1685/1.1725 support zone.

Bears tightened their grip by forcing EUR/USD below the 55-day moving average and daily cloud top.

ECB board member Fabio Panetta said the central bank should err on the side of too much stimulus rather than too little nL5N2GJ3KM, suggesting the potential for additional euro-negative policy moves.

Inflation expectations remained a weight on EUR/USD.
Euro zone 5-year/5-year inflation linked swaps EUIL5YF5Y=R set a near two-month low after peaking in August.

Options indicated increased concern for EUR/USD downside.
Risk reversals showed vol premiums for EUR/USD calls over puts quickly eroding, with the one-week tenor already favoring puts.

Besides probing the 55-DMA and daily cloud top, other tech signals highlight downside risks.
Falling daily and monthly RSIs imply bearish momentum remains and a large monthly inverted candle is forming.

A break below 1.1685/1.1725 support would suggest a test near 1.1500 is likely.

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Source:
Refinitiv IFR Research/Market Commentary

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