EUR/USD extends drop to fresh multi-week lows near 1.1830
|The shared currency continues to weaken against its peers on Monday, dragging the EUR/USD pair to its lowest level since August 31 at 1.1832. At the moment, the pair is trading at 1.1845, losing 0.95%, or 113 pips, on the day.
The pair started the week under pressure after the anti-euro AfD party in German elections came in third with 12.6% behind Chancellor Merkel's CDU/CSU (33%) bloc and SPD (20.5%). Commenting on this development, Jane Foley, Senior FX Strategist at Rabobank, wrote, "this morning the spread between Bunds and peripheral Eurozone bond yields widened as investors digested headlines that Merkel may now have to commence coalition talks with the Free Democrat and Green parties; whom have differing views on issues that include European reforms. In tune with this the EUR has also maintained a softer tone this morning.”
On the other hand, the US Dollar Index, which struggled to extend its FOMC-led gains above the 92 handle during the second half of the previous week, gained traction on Monday as investors re-focused on the heightened expectations of a December rate hike following the New York Fed President William Dudley's comments. Dudley argued that temporary factors depressing inflation were fading and added that he was expecting a continued gradual policy tightening.
The economic calendar from the euro area won't be offering any significant data on Tuesday, and it could be difficult for investors to find a reason to return to the shared currency as they are likely to remain focused on the political uncertainty in Germany. In fact, the Euro Index is down 0.86% on the day.
Technical outlook
The RSI indicator on the H4 chart is about to touch the 30 mark, showing oversold conditions for the pair, which could make a technical recovery before the next leg down. However, the same indicator on the daily graph turned south below the 50 mark, suggesting that the bearish momentum is gathering strength. The pair could face the immediate support at 1.1820 (Aug. 31 low). A decisive break below this level could open the door for further losses toward 1.1770 (Aug. 25 low) and 1.1660 (Aug. 17 low). On the upside, short-term resistances align at 1.1940 (daily high/20-DMA), 1.2000 (psychological level) and 1.2090 (Sep. 8 high).
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