EUR/USD Forecast: Bulls set to defy fundamentals and attack 1.11

  • EUR/USD has held its ground despite trade concerns and the mid-East flare-up
  • Tension is mounting ahead of the Federal Reserve's critical decision.
  • Monday's four-hour chart is pointing to a critical convergence the pair needs to break.

As one trade war is cooling down, another one is heating up – and it is directed against the European Union. The US may hit the EU with billions in tariffs after the World Trade Organization (WTO) ruled against Brussels due to its illegal subsidies for Airbus – the European aircraft maker. Cross-Atlantic trade relations have been calm while Washington was battling Beijing. The WTO decision opens the door to reopening the Atlantic front just as the US and China are getting closer to an interim deal.

EUR/USD has shrugged off this trade development – showing its strength. One of the reasons for the euro's resilience is the growing calls for fiscal stimulus. Pablo Hernandez de Cos, a member of the European Central Bank, has said that there is an urgent need to provide enhance fiscal policy. He is the latest ECB member to call for government action – echoing ECB President Mario Draghi's plea on Thursday. 

The pressure is not coming only from the central bank, but also from Eurocrats. Paolo Gentiloni, which will become the EU's economic affairs commissioner, has also called for pro-growth fiscal policies. If governments – especially Germany – open up their purse strings, the ECB may take a step back from stimulus that is weighing on the euro.

And after the ECB said its word last week, the focus is now shifting to the Federal Reserve. The world's most powerful central bank is set to reduce interest rates for a second consecutive time on Wednesday – but markets are marginally less certain about this outcome. Upbeat US inflation, retail sales, and consumer confidence figures released last week have pushed investors out of bonds. The resulting increase in yields reflects also reflects lower chances of another cut in October. The market reaction to the Fed decision hinges on its signals for future monetary policy and not only on the current decision. 

See Fed Preview: Far more than a rate cut – Five scenarios for the dollar

An attack on Saudi oil installations has knocked down 50% of the country's output and 5% of global oil production. The US blamed Iran for the brazen assault, and President Donald Trump has said the US is "locked and loaded." Oil prices have shot up and developments in the Persian Gulf are topping the headlines. While EUR/USD has been unaffected by the flare-up so far, further deterioration may weigh on the currency pair as demand for the safe-haven dollar may rise.

EUR/USD Technical Analysis

EUR USD technical analysis September 16 2019

EUR/USD has been enjoying upside momentum on the four-hour chart and trades above the 50 and 100 Simple Moving Averages. It faces a potential confluence of the 200 SMA and a downtrend that was formed in late August – which hits the price around 1.1100. 

Close by, 1.1110 was the high point on Friday and serves as resistance. It is followed by 1.1165, which was a high point in late August. 1.1190 and 1.1250 are next.

Support awaits at 1.1055, which provided support on Friday. It is followed by 1.1015, which held the pair up last week. Next down, we find 1.0985, which was a swing low last week. 1.0926 is the 2019 low and a double-bottom and is critical support. 

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