EUR/USD Forecast: Bulls giving up ahead of critical resistance level
|EUR/USD Current Price: 0.9847
- UK’s financial turmoil triggered rumors later denied by the Bank of England.
- Stable government bond yields limited demand for the American Dollar.
- EUR/USD is losing bullish strength but holds above the 0.9800 threshold.
The EUR/USD pair extended its rally to 0.9873 on Tuesday as demand for the American currency remained subdued throughout the first half of the day. The better tone of global equities and stable government bond yields limited demand for the USD.
UK turmoil setting the market’s tone
The market focus is still on the United Kingdom. Earlier in the day, an FT report made the rounds about the Bank of England possibly delaying the start of the quantitative tightening bond-selling program, sending the Pound up and adding pressure on the American Dollar. Nevertheless, the BOE quickly denied the headline, saying it was “inaccurate.” As a result, EUR/USD retreated from the mentioned high as the dollar gained ground across the FX board, although the slide was limited as government bond yields consolidate near multi-month highs.
The UK financial crisis is keeping markets on their toes. The kingdom has seen two finance ministers down in the last couple of weeks, with Jeremy Hunt debuting as Chancellor of the Exchequer reverting the mini-budged announced by Prime Minister Liz Truss late in September and warning of “difficult decisions ahead.”
The UK 10-year Gild currently hovers around 4.05%, up from the previous close at 3.97%. Its American counterpart, the US 10-year Treasury note, currently yields around 4%, stuck around its daily opening of 3.99%.
Trouble in Europe
European Union data keeps hinting at recession. The ZEW Survey came in mixed in October, as Economic Sentiment in the EU improved to -59.9 from -60.7. In Germany, the indicator printed at -59.2, better than the previous -61.9, and both beating expectations. However, the assessment of the current situation plummeted to -72.2, much worse than the previous -60.7.
The American session will bring US September Capacity Utilization and Industrial Production for the same month. In addition, the country will also release August TIC Flows.
EUR/USD short-term technical outlook
The EUR/USD pair hovers around 0.9840, limited to a tight 60 pips range. Technical readings in the daily chart suggest that the pair is losing its positive momentum, although chances of decline seem limited. The pair posted a higher high for the week while it keeps developing above a bearish 20 SMA. A daily descendant trend line provides critical resistance at around 0.9980. In the meantime, the Momentum indicator retreats sharply from its daily high but holds within positive levels, as the RSI indicator keeps consolidating around its midline, reflecting the absence of buying interest.
The 4-hour chart shows sellers are aligned around a mildly bearish 200 SMA but also that the 20 SMA crossed above the 100 SMA below the current level. Technical indicators eased from their recent highs and are currently directionless within positive levels. The risk of a downward extension will increase if the pair slides below 0.9790, a strong static support level.
Support levels: 0.9790 0.9750 0.9710
Resistance levels: 0.9865 0.9900 0.9940
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