EUR/USD Forecast: Caution backs the US Dollar ahead of first-tier events

Valeria Bednarik FXStreet

EUR/USD Current Price: 1.0714

The German ZEW survey showed Economic Sentiment stayed on the backfoot this month.
Stock markets lost momentum as the tech sector suffered from dismal reports.
EUR/USD gains bearish traction and could break through 1.0685, this month's low.

The EUR/USD pair slid towards the current 1.0710 price zone as the US Dollar recovered its bullish poise during European trading hours. The pair peaked at 1.0768, going downhill as the sentiment deteriorated.

Optimism prevailed through the Asian session amid news about the Chinese housing sector. Country Garden, the troubled housing giant, won approval to extend onshore bond repayments. As a result, most local indexes advanced, putting pressure on the USD. The mood changed after Oracle reported slowing sales, weighing on the tech sector. European indexes fell further after discouraging Euro Zone data. German ZEW Survey showed that the Economic Sentiment contracted to -8.9 in the EU, while it resulted at -11.4 in September for the country. Furthermore, the assessment of the current situation in Germany plummeted to -79.4, worse than anticipated. Concerns about an economic setback undermined demand for the Euro.

Meanwhile, the European Central Bank (ECB) will announce its monetary policy decision next Thursday. Speculative interest has been increasing bets on an upcoming 25 basis points (bps) rate hike, currently at around 45%. Such a decision would increase the risk of a soon-to-come recession.

The United States (US) has a scarce macroeconomic calendar on Tuesday, with market players focusing on the August Consumer Price Index (CPI) to be released on Wednesday.

EUR/USD short-term technical outlook

The EUR/USD pair is at risk of falling further, initially towards 1.0685, this month's low. Technical readings in the daily chart favor such a slide, as the pair is way below all its moving averages and with the 20 Simple Moving Average (SMA) heading firmly south below the longer ones. At the same time, technical indicators turned lower within negative levels, reaching fresh weekly lows and without signs of downward exhaustion.

The 4-hour chart shows that EUR/USD is comfortably consolidating a handful of pips below a flat 20 SMA. The longer moving averages, however, maintain their firmly bearish slope far above the current level. Finally, technical indicators have retreated sharply from their recent highs. The Momentum indicator now consolidates around its 100 level, while the Relative Strength Index (RSI) indicator hovers around 42, losing its bearish strength but still skewing the risk to the downside.

Support levels: 1.0685 1.0640 1.0595

Resistance levels: 1.0720 1.0755 1.0790

View Live Chart for EUR/USD

Author

Valeria Bednarik

FXStreet

Valeria Bednarik was born and lives in Buenos Aires, Argentina. Her passion for math and numbers pushed her into studying economics in her younger years.

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