EUR/USD Forecast: Dramatic downturn pushes it above 0.9700

EUR/USD Current Price: 0.9740

• European Central Bank Council members hint at a 75 bps rate hike.
• Profit-taking alongside easing government bond yields fueled the dollar’s decline.
• EUR/USD preserves its positive momentum in the near term but needs to run beyond 0.9790.

The EUR/USD pair trades around 0.9740 by the end of the American session, up from a fresh two-decade low of 0.9535. The American currency retained its positive momentum throughout the first half of the day, helped by comments from US politicians. White House economic adviser Brian Deese said that USD vigor reflects the relative strength of the US economy, dismissing the possibility of an adjustment to the currency value. Treasury Secretary Janet Yellen suggested that there was little cause for concern with current moves in financial markets.

However, profit-taking ahead of Wall Street’s opening was later exacerbated by the positive tone of equities and easing US bond yields.

The European Central Bank entertained market players as President Christine Lagarde said that they would continue to hike rates in the next several meetings. Additionally, Governing Council member Peter Kazimir and Bank of Latvia Governor, and ECB governing council member, Martins Kazaks were on the wires supporting a 75 bps rate hike in the October meeting.

Data-wise, Germany published the Gfk Consumer Confidence Survey, which plunged in October to -42.5 from -36.8 in the previous month.  Across the pond, the US published the August Goods Trade Balance, which posted a deficit of $87.3 billion, better than anticipated, while  Wholesale Inventories rose 1.3% in the month. Finally, Pending Home Sales declined 2% in the month.

On Thursday, the EU will publish the September Economic Sentiment Indicator, while Germany will release the preliminary estimate of the September Consumer Price Index. Inflation is foreseen up by 9.4% YoY, a figure that may hit the shared currency. The US calendar will include the final reading of the Q2 Gross Domestic Product and weekly unemployment figures.

EUR/USD short-term technical outlook

From a technical point of view, the sharp advance has helped EUR/USD to correct extreme oversold conditions in the daily chart. Nevertheless, technical indicators remain well into negative territory, falling short of suggesting additional gains. Furthermore, the 38.2% retracement of the latest daily decline stands at 0.9790, the level to surpass to confirm a continued advance.

The positive momentum persists in the near term. The 4-hour chart shows that indicators keep heading north after crossing above their midlines. At the same time, the pair is trading some 100 pips above a now flat 20 SMA. The longer moving averages, in the meantime, maintain their bearish slopes far above the current level.

Support levels: 0.9695 0.9650 0.9605

Resistance levels: 0.9750 0.9790 0.9835

View Live Chart for the EUR/USD