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Oct 05 - 11:55 PM

EUR/USD - COMMENT-EUR/USD Pauses For Breath, But Further Losses Loom

By Andrew M Spencer  —  Oct 05 - 10:29 PM

The EUR/USD downtrend has stalled in the last four days, but remains strong. The U.S. and euro zone are both fighting the coronavirus with aggressive vaccination campaigns, and their economies are recovering amid inflationary pressures, but yield differentials should support the dollar.

The Federal Reserve expects to start raising rates in 2022, as the economy and employment recovernL1N2QO2UY. While the European Central Bank is also focussed on inflation expectations and wages, it still expects inflationary 'frictions' to be temporary nF9N2PW00RnB5N2N803K.

The U.S. infrastructure spending package remains a work in progress, with opposition from Republicans and within the Democrats, but investors believe a compromise will be found nL1N2R10TU.
Failure would be USD-negative, but the USD will probably rise when a deal looks close.

A U.S. default is a potential reason for the USD to fall, but considered unlikely nL1N2R11XI.
Raising the debt limit should not move the dollar.

Technically the pause in the EUR/USD downtrend looks like a healthy unwinding of oversold conditions.
The falling lower 21-day Bollinger band has been an excellent indicator of an oversold market in recent months.
It was tested late last week, has subsequently fallen to 1.1543 and still heads south.

The next significant support is 1.1492, 50% of the 2020-21 rise.
A close above the 1.1642 falling 10-day moving average, which has capped this decline, would end the downside bias.

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eur Oct 6 Click here

Source:
Refinitiv IFR Research/Market Commentary

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