EUR/USD Forecast: Time to pick a trend outside the triangle – the downside is more appealing
|- EUR/USD has held up after falling in reaction to the Fed decision.
- The currency pair is trading in a narrowing triangle and may see higher volatility.
- Thursday's technical chart is showing a greater chance of falls.
After central banks have injected stimulus – EUR/USD needs a jolt to move it out of range – and that may be the narrowing triangle that the pair is trading in. The world's most popular currency pair has posted lower highs and higher lows. According to technical analysis textbooks, after a financial asset is confined to a narrowing range – it is set to explode – and move sharply to one direction or the other.
The fundamental case for the downside
There is a better case for the upside. The US Federal Reserve has cut interest rates by 25 basis points as expected, but also signaled no urgency to ease further. The Fed's forecasts for the future path of interest rates is showing no more rate reductions all the way to the end of 2020. The world's most powerful central bank may change its mind – as Jerome Powell, Chair of the Federal Reserve, has stressed. The Fed is dependent on economic data and global developments.
The accompanying statement saw only minor changes and showed that the central bank is pleased with current economic performance. Moreover, it revealed a split – two members voted against cutting rates and one opted for a reduction of 50 basis points. These are also signs that the central bank is in no rush to cut interest rates further.
See Fed Quick Analysis: Three hawkish moves to counter the cut – more dollar gains?
While the Fed is hesitating about further cuts, the European Central Bank recently cut, restarted its bond-buying program – and pledged to continue this program as long as necessary.
After a week of central bank action, the Fed has proved more hawkish than the ECB – indicating falls for EUR/USD.
Today's economic calendar features several economic indicators from the US – the Philly Fed Manufacturing Index, weekly Jobless Claims, and Existing Home Sales. It would take all three figures to fall short of expectations for the dollar to fall in response.
EUR/USD Technical Analysis
As mentioned earlier, EUR/USD is trading in a narrowing wedge. It is trading above the 50 and 100 Simple Moving Averages but below the 200 SMA. Momentum remains to the downside and balances the advantage in SMAs that the bulls have.
Support below the uptrend support line awaits at 1.0990, which is the weekly low. Further down, the 2019 trough – and a double-bottom – at 1.0926 is critical support. The next lines to watch are 1.09 and 1.0820.
Looking up, resistance awaits at last week's high of 1.1110. Next, 1.1165 capped EUR/USD in mid-August. It is followed by the stubborn peak of 1.1230 seen earlier that month.
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