EUR/USD Forecast: Euro set to tumble to new yearly lows as King Dollar has all stars aligned

Winter is coming – and fears that European households may struggle to pay the heating bills have been weighing on the common currency. Concerns of outright shutdowns in industries in the old continent and abroad are boosting the safe-haven dollar. 

Oil prices shot higher earlier this week and temporarily stole the show from natural gas prices, but the fresh surge in the volatile commodity is now in the spotlight again. Several European leaders have called to investigate the increase and also coordinate purchases. That worked for vaccine procurement, but gas is different. 

King Dollar has returned to its throne, backed by rising bond yields. After returns on 10-year Treasuries stabilized around 1.50%, they staged a breakout to 1.57%, the highest since June – giving an extra impetus to the greenback. The upswing is an extended reaction to the Federal Reserve's upcoming tapering of its bond-buying scheme. Reducing stimulus received an extra boost.

The ISM Services Purchasing Managers' Index (PMI) beat estimates with 61.9 points in September – and its inflation component also advanced. Rising price pressures are behind the Fed's urge to withdraw stimulus. A hint about the second leg, employment is due out on Wednesday. 

ADP's private-sector labor market figures are set to show an increase of 425,000 in September, up from 374,000 in August. Contrary to previous months, August's miss served as a timely hint toward the official Nonfarm Payrolls report for that month. Therefore, the payrolls' firm could have more impact now. 

See US ADP Employment Change September Preview: Yes, it's all about the Fed

Investors are also eyeing Capitol Hill, where Republicans continue refusing to raise the debt ceiling – increasing the chances of an unthinkable US default later in October. President Joe Biden suggested ditching the Senate filibuster to resolve the issue. 

On the expenditure front, there seems to be some movement toward a compromise within the Democratic party. Centrists would like a smaller bill and are seem to be settling for something in the range of $1.9-$2.2 trillion. Will leftists agree?

The original proposal was for $3.5 trillion over ten years, and the passage of this bill is tied to another smaller bipartisan legislature that is focused on hard infrastructure. News from Washington is set to move markets, but no breakthroughs are likely – potentially another drag for markets and a boost for the safe-haven dollar. 

Overall, the euro is set to continue struggling with energy issues and the dollar to benefit from higher yields and various worries. 

EUR/USD Technical Analysis

Euro/dollar has resumed its decline and remains capped by the 50, 100 and 200 Simple Moving Averages (SMAs) on the four-hour chart. On the other hand, momentum remains positive. Bears need the price to drop below the 2021 trough of 1.1562 to trigger a more forceful fall.

Below 1.1562, the next level to watch is the round 1.15 line, followed by 1.1450. 

Some resistance awaits at 1.1590, which provided support on Tuesday. It is followed by 1.1615, which capped the pair on Tuesday, and then by 1.1640.