EUR/USD Forecast: Closer to breaking 1.09, next leg determined by data

A slow-motion car accident may be the best description for EUR/USD's gradual grind lower – which lacks a single driver. The world's most popular currency pair has extended its downward drift, barely holding above 1.09 – and reaching the lowest levels since May 2017.

Monetary policy divergence is the name of the game. The Federal Reserve is seen as refraining from rate cuts in its upcoming meeting, while the European Central Bank may be forced to add further stimulus.

Recent US data has been mostly positive. Gross Domestic Growth (GDP) growth was confirmed at 2% annualized in the second quarter – as expected but significantly above the euro zone's lackluster growth of less than 1% annualized back then.

More recent data from the housing sector is pointing to a recovery. Pending Home Sales were the latest to beat expectations with an increase of 1.6% in August. It joined upbeat sales of new and existing homes.

Recent euro-zone figures have disappointed with German Import Prices dropping by 0.6% in August and French Consumer Price Index (CPI) falling by 0.4% in September – a worrying sign for next week's all-European inflation figures. 

The ECB has called on governments to do more – and French finance minister Bruno Le Maire echoed this sentiment by announcing tax cuts in his own country and calling Germany to invest. There is a gradual change of mind in the continent's largest country – but Berlin is reluctant to splash the cash – leaving most of the burden on the central bank.

US data, end-of-quarter flows

The focus now shifts to US data. Durable Goods Orders for August are projected to show a drop in headline orders, a rise in core orders and stagnation in the all-important Nondefense Orders ex-aircraft – the "core of the core." The data feed into third-quarter GDP and the Fed watches them closely.

The central bank's preferred gauge of inflation is also due out today. The Core Personal Consumption Expenditure (Core PCE) is set to advance from 1.6% to 1.8% – closer to the Fed's 2% target – alleviating pressure to cut rates. 

Last but not least, the University of Michigan's final Consumer Sentiment Index for September is forecast to confirm the initial read of 92 – which is above August's figure – but below the averages in previous months. Consumer spending is correlated to sentiment. 

End of quarter flows – coming ahead of the weekend and before the last of the third quarter which is Monday – are already in play and may trigger choppy trading later on.

EUR/USD Technical Analysis 

EUR/USD has been under pressure after losing uptrend support and now trades alongside a downtrend support line. The Relative Strength Index remains above 30 – thus outside oversold territory – and allowing for more falls. Momentum remains to the downside and the currency pair trades below the 50, 100, and 200 Simple Moving Averages. 

Support is at the fresh two-year low of 1.0905. Further down, 1.0820 and 1.0780 were gap lines back in April 2017. Lower, 1.0650 may serve as another cushion.

The currency pair continues battling 1.0926 – the previous 2019 trough and a double-bottom. 1.0965 capped a recovery attempt on Thursday and also worked as support beforehand. It is followed by 1.0995, which was a support line early this week. Next, we find 1.1025 and 1.1075.