- The EUR/USD is hitting fresh two-month lows and trades closer to 1.1400.
- A toxic mix of headlines from Italy, weak PMI's, and a risk-off atmosphere weigh.
- The technical picture is slightly bearish for the pair.
The EUR/USD hit a new two-month low of 1.1418, the lowest since mid-August. There are three reasons for this fresh slump.
1) Defiant Italy
Italy remains the center of attention in the European morning. The euro zone's third-largest economy continues insisting on an expansionary spending program with a deficit of 2.4%, contrary to 2% set as a target by the European Commission. Italian officials insist that there can be no growth without spending and that the budget is for Italians, not for Brussels. The European Commission sticks tot he rules it set. Despite some attempts to talk, a breakthrough seems quite far at the moment.
2) Weak European data
Markit's Purchasing Managers' Indices (PMI's) disappointed in the preliminary reads for October. France's Manufacturing PMI came out at 51.2 points while Services came out at an OK 55.6. However, both sectors disappointed in Europe's largest economy. Germany saw a manufacturing PMI of 52.3 and services at 53.6, both significant shortcomings and drops from September's final figures.
The annual growth in private loans also disappointed with 3.1%.
3) Risk-off atmosphere
While Asian stocks did OK, the negative sentiment that was seen in Wall Street on Tuesday carried into Europe today. European equity markets are on the back foot while S&P futures point to fresh losses. The adverse environment boosts the safe-haven yen and also the greenback.
The US releases New Home Sales later in the day, and the FOMC's Raphael Bostic and Loretta Mester speak. More substantial events are still to come. The European Central Bank makes its decision on Thursday while the US publishes the first estimate of GDP on Friday.
EUR/USD Technical Analysis
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The EUR/USD is trading below the 50 and 200 Simple Moving Averages on the four-hour chart. Also, the Relative Strength Index is leaning lower, but holding above the 30 level, still not encountering oversold conditions. However, there is no significant downside Momentum.
At two month lows, support awaits at 1.1395, the swing low from mid-August. Further down, 1.1365 was a stepping stone on the way down while 1.1300 was the trough of 2018.
Looking up, the previous cycle low of 1.1430 can serve as resistance. It is followed by the early-October low of 1.1465 and the recent high of 1.1495. Further above, 1.1550 capped the pair late last week.
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