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EUR/USD Forecast: Back to the basics, which is basically down, double-bottom in danger

  • The EUR/USD is falling, extending its losses after the Fed decision.
  • Italy, Brexit, and some US figures are set to determine the mood.
  • The technical picture is becoming more bearish for the pair.

The EUR/USD is trading in the lower half of the 1.1300s. The US Mid-Term Elections are in the rearview mirror, and monetary policy divergence retains to dominate the movements of the world's most popular currency pair.

The Federal Reserve left the interest rate unchanged and made minimal changes to the statement. The only notable modification related to business investment: it is now described as "moderating," a downgrade from the September meeting. Nevertheless, the greenback gained ground in the aftermath. 

Why? Perhaps markets had expected a more dovish statement after the elections are a thing of the past. A better explanation is that the Fed continues raising interest rates at a gradual but determined manner, while other central banks are moving very slowly and cautiously toward the exits. GDP data in the euro-zone has been quite disappointing while US growth remains robust, at least in the topline figure.

This Dollar domination will not last forever as the US economy has its issues. While the Fed acknowledged weak business investment, it is only one of three worrying signs for the US economy

However, the American currency continues enjoying the monetary policy divergence. 

Italy and the European Commission remain in loggerheads around the Italian budget. The third-largest economy in the euro-zone is set to respond to the rejection of the budget on November 13th, and it is unlikely to budge. An Italian lawmaker described the Brussels' calculations as "made up numbers," a statement that will not alleviate tensions.

Brexit headlines are split between hopes to finalize a deal in the next few days and significant disagreements that are hard to bridge. When the Pound experiences a considerable reaction to such headlines, the Euro also sees some volatility.

Data-wise, French Industrial Production disappointed with a fall of 1.8% in September, worse than expected. Later in the day, the Producer Price Index is projected to rise at a moderate pace while the University of Michigan's preliminary Consumer Sentiment measure for November is forecast to remain below 100 points.

All in all, monetary policy divergence and concerns about European developments are in play.

EUR/USD Technical Analysis

EUR USD Technical Analysis November 9 2018

The EUR/USD is trading well below the 50 Simple Moving Average on the four-hour chart, Momentum is to the downside and he Relative Strength Index is also pointing lower and holding above 30, therefore not reflecting oversold conditions at the moment. 

The EUR/USD is clinging to support at 1.1330, a level it visited in late October. The next line of support is critical: 1.1300: a double-bottom and also a round number. Losing the level opens the door to levels that were last visited in 2017. 1.1235 is the next downside target according to the Confluence Detector.

1.1360 is weak upside resistance after it held the EUR/USD in late October. 1.1400 is the next level to watch after it limited the pair's falls earlier this week. 1.1430 was a swing high in late October, and 1.1455 was a swing high in early November. 1.1500, yet another round number, is the last level to watch after capping the EUR/USD on election night.

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.

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