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EUR/USD Forecast: Bulls await sustained move beyond 61.8% Fibo. hurdle

  • The emergence of some fresh selling around the USD assisted EUR/USD to regain traction on Friday.
  • Uncertainty over the US fiscal deal, surging COVID-19 cases helped limit losses for the greenback.
  • This week's key focus will be on the latest ECB monetary policy decision, scheduled on Thursday.

The EUR/USD pair rallied around 80 pips from daily swing lows and moved back closer to weekly tops amid the emergence of some fresh selling around the US dollar on Friday. Despite fading hopes for a pre-election US fiscal stimulus, the positive news of the first approved treatment for the highly contagious coronavirus disease boosted investors' confidence and undermined the greenback's safe-haven demand. It is worth reporting that Gilead Sciences received US FDA approval on Thursday for its antiviral therapy to treat the virus. Adding to this, expectations of a strong Democratic victory in the US elections exerted some additional downward pressure on the buck. A broad-based USD weakness helped offset concerns about the continuous surge in new coronavirus cases and mixed Eurozone PMI prints.

Markit published the flash version of PMI prints for October and showed divergence in sentiment surrounding the manufacturing and services sectors, as well as between member states. In fact, the German Manufacturing PMI unexpectedly jumped to 58.0 during the reported month from 56.4 previous. However, the German Services PMI dropped back into the contraction territory and came in at 48.9 for the reported month, down from 50.6 previous. Separately, the Eurozone Manufacturing PMI rose to 54.4 from 53.7 while the gauge for the services sector plunged to 46.2, intensifying the risk of a double-dip recession. From the US, both the Manufacturing and Services PMIs beat market expectations and improve to 53.2 and 56, respectively in October, albeit did little to provide any meaningful impetus to the major.

Meanwhile, investors remain concerned that the second wave of COVID-19 cases could lead to renewed lockdown measures and prove detrimental for the already fragile global economic recovery. This, along with the uncertainty over the next round of the US fiscal stimulus measures and the US political uncertainty, kept a lid on the optimism. This was evident from a fresh leg down in the equity markets, which drove some haven flows towards the greenback on the first day of a new trading week. Apart from this, speculations for additional policy easing by the European Central Bank prompted some fresh selling around the major during the Asian session. Market participants now look forward to the release of German Ifo Business Climate and New Home Sales data from the US for some impetus. The key focus, however, will be on the latest ECB monetary policy update on Thursday.

Short-term technical outlook

From a technical perspective, the pair on Friday attracted some dip-emergence of some dip-buying near an important confluence resistance breakpoint supports prospects for additional gains. The mentioned resistance-turned-support comprised of 50-day SMA and a short-term descending trend-line, which is currently pegged near the 1.1785 region and should now act as a key pivotal point for short-term traders. Failure to defend the mentioned support, leading to a subsequent weakness below the 1.1765-60 horizontal zone might negate any near-term bullish bias. The pair might turn vulnerable to accelerate the fall back towards the 1.1700 mark. The downward trajectory could further get extended towards testing September monthly swing lows, around the 1.1615-10 region.

On the flip side, bulls might still need to wait for a sustained move beyond the 1.1860-65 hurdle, representing the 61.8% Fibonacci level of the 1.2011-1.1612 downfall. Some follow-through buying beyond the 1.1880-90 congestion zone will be seen as a fresh trigger for bullish traders and set the stage for an extension of the recent appreciating move, possibly towards reclaiming the key 1.2000 psychological mark.

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Haresh Menghani

Haresh Menghani is a detail-oriented professional with 10+ years of extensive experience in analysing the global financial markets.

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