EUR/USD Forecast: New quarter, same downside pressures, support at risk

The EUR/USD resumes its fall after a last-minute bump on Friday.
The Italian budget crisis and echoes from the Fed meeting weigh.
The pair is flirting with oversold conditions once again and is at critical support.

Yohay Elam FXStreet

The EUR/USD is trading below 1.1600, grinding lower after end-of-quarter adjustments sent it higher on Friday. The reasons for the downfall have not changed. The Italian government decided on a budget deficit of 2.4%, breaching EU requests. Italian bonds and stocks dropped on Friday, and a similar picture is seen today. The populist government has shrugged off the market reaction and is keen to push through with tax cuts and the Citizens' Income program. The fresh pressure in the Milan stock exchange carries the common currency lower.

Another story from last week continues to have its effect on markets. The US Dollar is resuming its rises on the backdrop of the Fed rate hike on Wednesday. The central bank also signaled four more increases until the end of 2019, and Chair Jerome Powell was upbeat about the economy.

A busy day awaits traders at the wake of the new quarter. German retail sales disappointed once again with a drop of 0.1% in August. Spain's Manufacturing PMI also fell short of expectations with a slide to 51.4 points. We will later receive the Unemployment Rate for the euro-zone for August.

The most important economic indicator of the day is the US ISM Manufacturing PMI. After hitting a very high level of 61.3 points, a small slide is on the cards. The forward-looking gauge also serves as a hint towards Friday's jobs report, the Non-Farm Payrolls. The Prices Paid component will also be eyed, as it provides another insight on inflation.

Americans continue following the political drama related to the nomination of Judge Brett Kavanagh to the US Supreme Court. The process may hurt Republicans' chances in the mid-term elections and may impact markets.

EUR/USD Technical Analysis

The EUR/USD is under pressure after losing the 200 Simple Moving Average on the four-hour chart. Momentum is pointing lower, but the pair may be entering oversold conditions. The Relative Strength Index is just below 30. This implies a potential bounce.

1.1565 is an immediate line of support after supporting the pair in early September. Losing 1.1565 would be quite a disappointment for the bulls.

1.1530 was a triple bottom in August and September and is next down the line. 1.1495 was a swing low when the EUR/USD was moving higher, and 1.1445 is next.

Looking up, 1.1605 supported the EUR/USD in mid-September. It is followed by 1.1650 which was a stubborn support line in mid-late September. 1.1720 was a clear separator of ranges, supporting the pair just before the recent fall.

More: EUR/USD path of least resistance is down, 1.1480 eyed – Confluence Detector

Author

Yohay Elam

FXStreet

Yohay is in Forex since 2008 when he founded Forex Crunch, a blog crafted in his free time that turned into a fully-fledged currency website later sold to Finixio.

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