EUR/USD Forecast: Snookered by the Senate and SMAs, ready to retreat

Bipartisan consensus is rare in Washington – and when it has happened now, markets are feeling it. 

The US Senate has unanimously approved legislation to support Hong Kong protesters, limit exports of crowd control measures, and require the requalification of the city-state's special status on a yearly basis. China, which is backing the HK authorities, has summoned the American ambassador to Beijing and expressed its anger.

The row over five-month-long protests is now playing a more prominent role in US-Sino relations – and the spat may derail trade talks. Global stock markets are under pressure and the safe-haven US dollar is gaining ground against the euro.

The common currency has been unable to capitalize on falling benchmark US 10-year Treasury yields. The greenback's value is occasionally correlated with these bonds – but not in this case, and not in favor of the euro.

The old continent continues suffering from dismal economic growth but policymakers are denying that a recession is on the horizon. Phillip Lane, Chief Economist at the European Central Bank, has ruled out an outright downturn and foresees a recovery in the next year or two. Germany managed to post a 0.1% growth in the third quarter after contracting by the same percentage beforehand. On Tuesday, Lane said that the bank's policies have yet to reach its limits.

Fed minutes in focus

The focus now shifts to the US central bank. The Federal Reserve releases its meeting minutes for the October 30 meeting, and it may shed light on future monetary policy. Back then, the Fed cut rates for the third consecutive time and signaled a pause.

However, this "wait-and-see" mode is asymmetric – the bar for raising rates is higher than the one for cutting them. The Washington-based institution would lower rates if its future outlook changes, while it would only raise them after inflation will have sustainably risen. 

The minutes may show if the doves supporting more cuts carry more weight than the hawks – such as those that voted against the three cuts.

See FOMC Minutes Preview: Reinforcing the rate pause

Overall, trade headlines and the Fed's minutes are set to move euro/dollar.

EUR/USD Technical Analysis

The world's most popular currency pair has extended its drop after failing to hold onto the steep uptrend support line. On its way down, it lost the 100 and 200 Simple Moving Averages on the four-hour chart – another bearish sign. On the other hand, euro/dollar is holding above the 50 SMA and continues benefiting from upside momentum.

Support awaits at around 1.1055, the daily low and a resistance line from early November. It is closely followed by 1.1045, which capped it last week, and then by 1.1015, a support line from the same time. 1.0990 is next down the line. 

Resistance awaits at 1.1090, a wing high from early in the week. The line also capped EUR/USD in early November. It is followed by 1.1110, a swing low from early November, and then by 1.1130 and 1.1180.