EUR/USD analysis: Catalonia crisis vs. ECB's tightening to determinate EUR's fate
|EUR/USD Current price: 1.1781
It was quite a dull week for the EUR/USD pair in terms of price action, as it closed it marginally lower at 1.1781 after spending it within previous week's range. Notable, the greenback was the best performer across the board, ending the week with gains against all of its major rivals, while the common currency was the most reluctant to give up, a sign that speculative interest is still hoping for an EUR´s rally. News from the Euro-area led the way, particularly focused on the situation in Spain and its autonomic region Catalonia, and mounting speculation on what the ECB will announce this Thursday on Monetary policy.
Catalonia has been a major risk factor for the EUR, as the region´s plans to become independent resulted in the central government triggering the art. 155 of the National Constitution, which means trimming the Catalonian autonomic powers. Over the weekend, the Catalan president, Carles Puigdemont, said that this decision is the worst attack on local institutions since Franco's dictatorship and that they won't accept the direct ruling. What prevented the common currency from plummeting, is mounting speculation that the Central Bank will announce some sort of reduction on its bond-buying program next Thursday, after trimming it from €80B to €60B earlier this year.
Another risk factor for the pair were comments from Fed's head Janet Yellen late Friday, as she repeated that the latest fall in inflation has been an unexplainable "surprise." If she can't explain the phenomenon, she will hardly be able to fix it, and therefore inflation could remain low and mean fewer rate hikes for 2018 and on.
Technically, the daily chart for the pair shows that, while the upward potential has receded, a downward movement is still not confirmed, as the price hovers around a horizontal 20 DMA but above bullish 100 and 200 DMAs, this last well below the current level. Technical indicators have turned south, but the Momentum is still above its 100 level whilst the RSI is now at 46, both within neutral territory. Shorter term, and according to the 4 hours chart, the scale leans towards the downside, as the early recovery from the 61.8% retracement of its latest bullish run met selling interest around a bearish 200 SMA, with the price currently below all of its moving averages, the Momentum indicator about to cross its 100 level, and the RSI indicator directionless around 44. The pair has an immediate support at 1.1760, where it bottomed on Friday, followed by 1.1720. Below this last, the downward potential will become more serious, with scope for a downward move towards 1.1660 a major static support area.
Support levels: 1.1760 1.1720 1.1690
Resistance levels: 1.1835 1.1865 1.1890
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