EUR/USD Forecast: Finding near-term support in a better mood

The EUR/USD pair recovered ground on Tuesday, peaking mid-European session at 1.0610, as the mood improved following comments from Federal Reserve (Fed) officials, cooling down expectations for a November rate hike. Speaking at the National Association for Business Economics, Fed Vice Chair Philip Jefferson said policymakers need to balance the risk of not having tightened enough against the risk of policy being too restrictive. He noted that higher government bond yields tighten financial conditions and would consider that when deciding on the policy path.  

Dallas Fed President Lorie Logan said the higher returns being demanded by investors to hold long-term bonds could offset the need for further increases in the Fed’s policy interest rate, speaking at the same event. As a result, Asian and European shares edged higher, recovering the ground lost on Monday.

Following the United States (US) holiday, Treasury bond yields eased, partially affected by Fed officials’ comments and demand for safety resulting from the Middle East conflict between Israel and Palestinian Hamas. The yield on the 10-year note offers 4.70%, down 8 basis points (bps), while the 2-year note yields 5.01%, down 7 bps.

The macroeconomic calendar had little to offer. The US published the NFIB Business Optimism Index, which declined to 90.8 from 91.3 in August, missing the market expectations. More Fed speakers will be on the wires later in the day, and their words will likely set the mood ahead of the release of the Federal Open Market Committee (FOMC) Meeting Minutes on Wednesday.

EUR/USD short-term technical outlook

The EUR/USD pair eased from the aforementioned high to trade around 1.0580 ahead of Wall Street’s opening. It holds on to modest intraday gains, although additional advances are unclear. In the daily chart, EUR/USD remains below a bearish 20 Simple Moving Average (SMA), while the longer moving averages held far above the shorter one. Technical indicators, in the meantime, advance within negative levels, not enough to confirm an upward extension.

The upside seems limited in the near term, and according to the 4-hour chart. The pair trades above a mildly bearish 100 SMA while the 20 SMA maintains its bullish slope below it. Technical indicators, on the other hand, had lost their positive momentum and turned south, still holding above their midlines. Further slides below 1.0545 should see the pair resuming its decline. However, a run through the daily high could put bulls in control.

Support levels: 1.0545 1.0485 1.0450

Resistance levels: 1.0610 1.0650 1.0690

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