EUR/USD Forecast: Fresh lows look imminent as Italy, US GDP and the charts point down
|- The EUR/USD is making another attempt to recover in what seems like a dead cat bounce.
- Risk off is back after a short break, with Italy and US GDP in the spotlight.
- The technical picture is very bearish and indicates further falls.
The EUR/USD trades below 1.1400 after setting a new 10-week low at 1.1358. The market mood is gloomy once again. US stocks recovered on Thursday but only just, and closed well below the highs. The global sell-off in equities supports the US Dollar and the Japanese yen against all the rest.
The European Central Bank left its policy unchanged as expected and President Mario Draghi tried not rocking the boat. He expressed satisfaction about wage growth and employment. The central banker also seemed confident that inflation would reach its target. On the other hand, he warned about the fragility of the monetary union and protectionism and said that recent economic data came out a bit below expectations. Reporters asked many questions about the clash between Italy and the European Commission, but Draghi dodged the politically sensitive topic.
Italy continues insisting on a 2.4% budget deficit while the EC insists it is unacceptable and it rejected the budget. The spread between Italian and German bonds remains above 300 basis points reflecting fear in the markets. The situation in Italy weighs on the Euro.
Rating agency Standard and Poors (S&P) will publish its updated rating and outlook for Italy after the close of European stock markets. They may opt for a negative outlook without a downgrade at this point. In any case, their decision is important and will likely impact the common currency today and also on Monday.
The primary event for today is the first release of US GDP for Q3. The consensus stands at 3.3% annualized growth, lower than the superb 4.2% in Q2 but undoubtedly a robust level of growth. The range of estimates is quite broad: 2.5% to 4.4%. The initial publication tends to have a considerable impact on markets.
See: US GDP Preview - 4% Here We Come?
EUR/USD Technical Analysis
The EUR/USD is suffering from downside Momentum while the Relative Strength Index on the four-hour chart is low, but above 30, thus not in the oversold territory just yet. The picture is quite bearish.
1.1357 was the low point yesterday and the lowest in ten weeks, serving as immediate support. The mid-August and 2018 trough of 1.1300 is a critical downside level. Further down, we are back to levels last visited in the summer of 2017. The confluence detector shows that 1.1240 is a level of interest.
On the topside, we find 1.1395 as an initial line of resistance. It is followed by 1.1430 which capped the pair on Thursday and also served as support earlier in October. Further up, 1.1460 supported the pair twice in early October.
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