EUR/USD Forecast: Last rise on top of uptrend support? Fed fears set to trigger a correction

Forex is never a one-way street – and even if the general rise may continue, tensions ahead of the week's big event are a cause for a pause. 

The latest upside driver has come from China – the world's second-largest economy reported better than expected industrial output and retail sales figures for August. After a hesitant return, shoppers are now back in full force, with last month's consumption exceeding that of the previous year. 

Are other economies on course to exceed pre-pandemic levels? Germany's ZEW Economic Sentiment for September is set to show a minor dip in confidence, albeit from high levels. Investors in the old continent are happy with the recovery, yet rising COVID-19 cases in Europe are a cause for worry. 

If ZEW allows for further euro gains, positioning ahead of Wednesday's big event may curb them. The Federal Reserve is set to leave its policy unchanged in the last decision before the elections, yet is releases new forecasts which may impact markets. While the Fed announced a dovish long-term policy shift, it signaled no new policy change is coming. Cautious projections without hints of more stimulus may disappoint investors. 

See How the Fed could drown markets while trying not to rock the boat

Industrial output and the Empire State Manufacturing Index are on the cards on Tuesday and may also move markets. 

Coronavirus vaccine hopes are also underpinning equities and euro/dollar. A Chinese company hopes to be able to distribute doses already in November, joining the race in which Pfizer and AstraZeneca stand out. The latter resumed its Phase 3 trial after having to halt it following a participant's illness. 

The euro also continues benefiting from the European Central Bank's lax approach to the recent rise in the value of the currency. Officials at the Frankfurt-based institution have reiterated that the exchange rate is not a target. 

Brexit remains a risk factor for the euro. The British parliament advanced a controversial bill that violates the Withdrawal Agreement detailing the UK's departure from the EU. The legislation raises the chances of a hard Brexit, that may have an adverse impact on the eurozone. Contrary to last week's moves, price action is limited to the pound this time, yet a rapid slide in sterling may drag the common currency down with it.

Overall, EUR/USD is rising on optimism but faces several headwinds.

EUR/USD Technical Analysis

Euro/dollar is trading above an uptrend support line that has been accompanying it in the past week. The currency pair is benefiting from upside momentum on the four-hour chart and trading above the 50, 100, and 200 Simple Moving Averages. The Relative Strength Index is on high ground, but still below 70, outside overbought conditions.

Significant resistance awaits at 1.1920, a swing high from last week. It is followed by 1.1965, a temporary separator of ranges from early September. The 2020 peak of 1.2010 is next. 

Support awaits at 1.1860, which is the daily low. It is followed by 1.1820, a support line from last week, followed by 1.1785 and 1.1750.