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Oct 29 - 11:55 AM

EUR/USD - COMMENT-EUR/USD Likely To Stay Heavy After ECB Punts To December

By Christopher Romano  —  Oct 29 - 10:40 AM

EUR/USD fell on Thursday after the ECB kept policy unchanged, as expected, but hinted at easing in December nL1N2HK0F3, which could keep the euro soft combined with COVID lockdowns and U.S. election risks.

ECB President Christine Lagarde's dour tone nL8N2HK765 and pledge to look at all instruments in the ECB's recalibration nECBOCT3 should support EUR/USD bears' confidence as European pandemic restrictions also weigh on economic growth expectations nL8N2HK7AA.

Tightening polls and the possibility of a disputed U.S. election result nL1N2HK0LP are increasing market uncertainty and demand for the safe-haven dollar and yen.

EUR/USD losses were accompanied by bearish options signals, with risk reversals EUR1MRR=FN showing 1-week and 1-month vol premiums for calls exceeding those for puts while 3-month premiums were nearly flat.

Technicals also indicate downside risks.
Monthly and daily RSIs are dropping, a monthly inverted hammer is forming for October while the daily cloud base and 23.6% Fibo of the 1.16036-1.2014 rise have been pierced.

EUR/USD's downside could be exacerbated as year-end liquidity thins nL1N2HK1K9.

Unless a U.S. aid package is agreed or the Fed introduces new dollar-negative policies, EUR/USD bears should be in control.

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Source:
Refinitiv IFR Research/Market Commentary

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