- The recovery from multi-month lows encounters resistance near 1.0700.
- The US Dollar Index posted a daily loss for the first time in ten days.
- The FOMC meeting kicks off on Tuesday, with the Fed expected to keep rates unchanged.
The EUR/USD rose on Monday and approached the 1.0700 level before losing momentum. This upward movement was driven by a correction in the US Dollar, on a relatively quiet session.
Last Thursday, the European Central Bank (ECB) hiked interest rates by 25 basis points as expected, but the Euro weakened afterwards. The slide of EUR/USD found support at 1.0630, and since then, the pair has been recovering ground, correcting higher.
The market now sees the ECB not raising rates further, and the debate shifts to how long rates will remain at current levels. The same situation applies to the Federal Reserve. The FOMC meeting begins on Tuesday, and no change in rates is expected. The focus will be on the statement, economic projections, and Chair Powell's comments.
In the new situation, fundamentals continue to favor the US Dollar as the growth outlook in the US looks better than in Europe. This week's data includes the preliminary PMIs, which provide the first glimpse of activity in Europe and the US during September. These figures could provide evidence of the differing growth perspectives.
On Tuesday, Eurostat will release the final reading of the August Eurozone Consumer Price Index, which is expected to show no revision from the preliminary 5.3% annual rate. In the US, Housing Starts and Building Permits are due.
EUR/USD short-term technical outlook
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The EUR/USD has experienced nine consecutive weekly declines, which is a streak not seen since the creation of the common currency. The weekly chart suggests that a correction is overdue. However, on the daily chart, the downward trend remains clear, even though the pair is up for the second trading day in a row. Technical indicators present mixed signals that could favor consolidation around current levels. The key resistance is seen at 1.0710, and a daily close clearly above that level could indicate some relief ahead for the Euro. On the downside, a break below 1.0630 would expose 1.0600, with the next strong support area around 1.0570.
On the 4-hour chart, the pair is recovering from multi-month lows. It recently faced resistance at 1.0700 and returned to the 20-period Simple Moving Average (SMA). The MACD shows some positive signs, suggesting that the recovery could continue. However, other indicators like the Relative Strength Index (RSI) and Momentum do not offer the same level of conviction. A decline below 1.0660 would indicate renewed weakness. On the upside, a break above a downtrend line situated at 1.0715 could strengthen the outlook for the Euro.
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