EUR/USD Forecast: Exposing its weakness after failing to rise on good news

When an asset is unable to rise on good news – it exposes its weakness and may fall on the first negative development. That may be the case of EUR/USD, which has failed to recapture the lost 1.10 level no less than three times. German Industrial Production rose by 0.3% in August – beating expectations in a welcome change. Nevertheless, the common currency has dug into its range. 

Traders may be worried about the bigger picture for the European economies, which remains dark. The Sentix Investor Confidence measure for October, released on Monday, showed growing pessimism with a score of -16.8, worse than expected. 

Trade uncertainty 

The indecision in EUR/USD may also reflect mixed news from US-Sino trade talks. China has reportedly agreed to move forward and strike a deal with the US on areas both sides can agree but wants to push sensitive topics to next year. On the other hand, US President Donald Trump has reiterated his desire to strike a comprehensive accord. 

If the world's largest economies settle for a limited deal, that will probably satisfy markets, that want to see some certainty and no further escalation. A Chinese delegation led by Vice Premier Liu He is on its way to Washington for talks starting on Thursday.

If high-level talks break down in acrimony, stocks may plunge and trigger a risk-off reaction that would trigger safe-haven flows toward the Japanese Yen and the US Dollar. Moreover, the slowdown in Germany stems mostly from weaker Chinese demand – further deterioration may weigh on the euro. 

The chances of success seem to have fallen after the US blacklisted 28 Chinese firms that are involved in human rights violations in the western Chinese province of Xinjiang. Hickvision and the other companies are dependent on American technology, such as processors produced by Intel for their business. While not directly related to trade talks, every aspect of US-Sino relations may be up for grabs, including the situation in Hong Kong, arms sales to Taiwan, and more.

Fed returns to focus, politics eyed as well

Jerome Powell, Chair of the Federal Reserve, will speak later in Denver, Colorado. Contrary to his public appearance on Monday, Powell is set to talk about monetary policy. Investors are looking for hints ahead of the October 30 Fed decision amid mixed economic signals.

Powell is undoubtedly following developments related to US-Sino relations and will also be watching Producer Price Index (PPI) numbers. Economists expect Core PPI to have risen by 2.3% in September. The indicator serves as a warm-up toward Thursday's all-important Consumer Price Index (CPI) report. 

Trump's impeachment inquiry may also move markets today as House Democrats continue their hearings. Gordon Sondland, America's ambassador to the EU, will face lawmakers today. His involvement in the Ukraine-gate scandal came to light last week. So far, opinion polls have shown growing support for impeaching the president, but far from sufficient to turn Republicans against him.

EUR/USD Technical Analysis

As mentioned earlier, the psychologically significant 1.10 level capped EUR/USD three times in recent days and is critical resistance. Upside momentum on the four-hour chart has waned, and the currency pair is struggling with the 100 Simple Movin Average. The Relative Strength Index (RSI) is stable. Overall, the technical picture is mixed after several days of range trading.

Above 1.10, the next resistance line to watch is 1.1025, which capped the pair in late September. Next up, 1.1075 held the pair down earlier that month. 1.1115 held it down several times beforehand. 

Looking down, 1.0960 separated ranges during September but has lost some of its strength in recent days. It is followed by the former double-bottom of 1.0926, then by the late-September trough of 1.0905, and finally by the 2019 low of 1.0879.