EUR/USD analysis: strong US equities add to EUR jitters

Valeria Bednarik FXStreet

EUR/USD Current price: 1.1737

Wall Street rallies on tech gains, dollar supported.
German President Steinmeier looking for talks, PM Merkel prefers new elections.

The common currency led the way at the beginning of the day, after shocking news coming from Germany on Sunday. PM Angela Merkel has been trying to form a coalition government but on Sunday, the Free Democrats walk out of talks amid divergences over migration and other issues. The EUR/USD pair fell initially to 1.1722 but recovered to reach a daily high of 1.1808 as risk sentiment changed course during European trading hours, with equities entering positive territory a couple of hours ahead of the close. A strong rally in US indexes backed the greenback afterward, while concerns about German's political future increased. After meeting with Merkel, German's President Steinmeier called on parties to resume responsibility and resume talks, in which he is willing to participate. He added that parties shouldn't return the mandate to voters, clearly standing against a snap election. Merkel hit the wires later on the US afternoon, saying that she would prefer to go ahead with elections rather than try to form a minority government. While there are no short-term macroeconomic implications to the European most sustainable economy, indeed the situation poses a risk for the stability of the region.

The macroeconomic calendar has been quite scarce, with the only relevant piece of news being German PPI for October, unchanged from preliminary estimates. The situation will persist this Tuesday, as investors will only have to care of US Existing Home Sales figures for October, as a later Yellen speech is focused off monetary policy.

Technically, the pair reversed its early Momentum, and heads into Asian opening with a short-term bearish bias, as technical indicators in the 4 hours chart faltered around their mid-lines, gaining downward momentum, but still above Friday's lows, as the price was unable to establish above a bearish 20 SMA, now also below the 38.2% retracement of the latest bullish run at 1.1745, all of which leans the scale towards the downside, particularly on an extension below 1.1705, the 50% retracement of the same rally. A recovery beyond the strong 1.1820/30 resistance area is required to revert the current negative stance, something quite unlikely in the current scenario.

Support levels: 1.1705 1.1670 1.1630

Resistance levels: 1.1745 1.1790 1.1830

View Live Chart for the EUR/USD

Author

Valeria Bednarik

FXStreet

Valeria Bednarik was born and lives in Buenos Aires, Argentina. Her passion for math and numbers pushed her into studying economics in her younger years.

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