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Sep 25 - 11:55 AM

EUR/USD - COMMENT-A EUR/USD Move Below 1.1500 Looks More Likely

By Christopher Romano  —  Sep 25 - 09:40 AM

EUR/USD is nearing a break of Thursday's low nL2N2GM0HO, and if it occurs, it will bolster bears' confidence, which could lead to move below 1.1500.

Indeed, a move down to the 1.1485/95 zone seems likely as bearish factors persist, and, in fact, appear to be intensifying.

Euro zone inflation expectations continue to fall.
The 5-year/5-year inflation linked swap EUIL5YF5Y=R is still trending downward, and a break of 1.45%/1.50% support could trigger a sharper fall.

Options increasingly show concern about EUR/USD downside.
Risk reversals show that vol premiums for 1-week and 1-month puts now exceed those for calls, while the premiums for the 3-month tenor are approaching zero.

Meanwhile, already bearish technicals are being bolstered.
Monthly charts show a large bearish engulfing candle forming for September which compounds negative signals from EUR/USD trading below the 55-DMA and daily cloud top, as well as falling daily and monthly RSIs.

Unless the dollar's current rally can be reversed, which seems unlikely as the Fed sits on its hands, and the potential for additional U.S. fiscal stimulus fades, EUR/USD's slide should extend.

The daily cloud base will lend some support, but will likely only slow a move to 1.1485/95 where the 38.2% Fibo of 1.0636-1.2014 and March monthly high sit.

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Source:
Refinitiv IFR Research/Market Commentary

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