|

EUR/USD Forecast: 3 reasons for the Dollar Domination

  • The EUR/USD is trading below 1.1500, consolidating the falls.
  • The US Dollar is propelled higher by three factors related to each other.
  • The technical picture is bearish for the pair, with the "death cross" looming.

The EUR/USD is trading below 1.1500, the lowest levels in six weeks. The pair fell sharply on Wednesday on US Dollar strength stemming from three factors:

1) Excellent data

The ADP Non-Farm Payrolls report came out at 230,000 jobs gained in September, far above expectations and an upbeat figure in its own right. The publication serves as a hint towards the official NFP on Friday and raises expectations.

The ISM Non-Manufacturing PMI also beat early projections with a score of 61.6, the best level ever. The robust number implies a fast clip fo growth in the US services sector and also boosts expectations for Friday's NFP.

2) US bond yields break higher

The 10-year Treasury bond yield broke above the previous highs of 3.13% and hit a new peak at 3.23%. The sharpy movement is atypical. Yields of earlier maturities also moved higher. The higher levels make the US Dollar more attractive. This was mostly felt in the USD/JPY but the EUR/USD was also pressured lower by the move.

3) Powell's power play

Fed Chair Jerome Powell made his fourth public appearance in a week but this time was slightly different. The central banker explicitly said that monetary policy of the Federal Reserve may become tight, at least temporarily.

Some Fed officials want to stop when the rate reaches neutral but the man at the top opened the door to having interest rates above the level of inflation. Some speculate the Fed may even raise rates five times in 2019.

Elsewhere

Tensions around Italy are not as high as they used to be. The Italian government sticks to its plans to have a budget deficit of 2.4% in 2019, breaching EU rules. However, the coalition partners of the populist government agreed on lower deficits for 2020 and 2021, aiming to appease the European Commission. The Italian government is waiting for a verdict on its budget later this month.

Data in the euro-zone was somewhat disappointing with a drop of 0.2% in August. 

The economic calendar today is quite light, with only US Factory Orders worth a mention. Tension is mounting towards the all-important US Non-Farm Payrolls on Friday.

EUR/USD Technical Analysis

EUR USD technical analysis October 4 2018

The EUR/USD is trading well below the 50 and 200 Simple Moving Averages on the four-hour chart. The SMA50 is about to cross the SMA200, in what is known as the "death cross". On the other hand, the Relative Strength Index (RSI) is almost below 30, pointing to oversold conditions. 

Support awaits at 1.1460, the fresh low and a veteran line from 2015. Further down, 1.1395 was a swing low in August and 1.1365 was the initial level the pair dropped to in its collapse in the summer. 1.1300 is the 2018 low. 

Looking up, 1.1530 was a triple-bottom and now switches to resistance. 1.1565 supported the pair in September and 1.1595 was a swing high just before the recent drop. 1.1625 and 1.1680 are next up.

Author

Yohay Elam

Yohay Elam

FXStreet

Yohay is in Forex since 2008 when he founded Forex Crunch, a blog crafted in his free time that turned into a fully-fledged currency website later sold to Finixio.

More from Yohay Elam
Share:

Editor's Picks

EUR/USD turns negative near 1.1850

EUR/USD has given up its earlier intraday gains on Thursday and is now struggling to hold above the 1.1850 area. The US Dollar is finding renewed support from a pick-up in risk aversion, while fresh market chatter suggesting Russia could be considering a return to the US Dollar system is also lending the Greenback an extra boost.

GBP/USD change course, nears 1.3600

GBP/USD gives away its daily gains and recedes toward the low-1.3600s on Thursday. Indeed, Cable now struggles to regain some upside traction on the back of the sudden bout of buying interest in the Greenback. In the meantime, investors continue to assess a string of underwhelming UK data releases released earlier in the day.

Gold plunges on sudden US Dollar demand

Gold drops markedly on Thursday, challenging the $4,900 mark per troy ounce following a firm bounce in the US Dollar and amid a steep sell-off on Wall Street, with losses led by the tech and housing sectors.

LayerZero Price Forecast: ZRO steadies as markets digest Zero blockchain announcement

LayerZero (ZRO) trades above $2.00 at press time on Thursday, holding steady after a 17% rebound the previous day, which aligned with the public announcement of the Zero blockchain and Cathie Wood joining the advisory board. 

A tale of two labour markets: Headline strength masks underlying weakness

Undoubtedly, yesterday’s delayed US January jobs report delivered a strong headline – one that surpassed most estimates. However, optimism quickly faded amid sobering benchmark revisions.

Aster Price Forecast: Demand sparks on Binance Wallet partnership for on-chain perpetuals

Aster is up roughly 9% so far on Thursday, hinting at the breakout of a crucial resistance level. Aster partners up with Binance wallet for the second season of the on-chain perpetuals challenge.