|

EUR/USD Forecast: Spooked by the highs and the doves after the Fed-fueled rally

  • EUR/USD has risen in response to the Fed decision.
  • The currency pair's gains may have reached their limits amid dovish comments and weak data.
  • Thursday's four-hour chart is pointing to near overbought conditions.

The dark side has been more appealing for the Federal Reserve on the evening of Halloween – in a "trick or treat" meeting. 

The world's most powerful central bank cut interest rates for the third time in a row, as expected. It then sent the dollar higher by signaling a pause via a change of its guidance, saying that monetary policy is appropriate. Moreover, the Fed seemed content about the labor market and consumption, while unworried about inflation. 

Jerome Powell, Chair of the Federal Reserve, kicked off the meeting by saying that monetary policy is in a good place and that only a "material reassessment" would be needed to trigger another rate cut.

Yet after setting a high bar for cutting rates, he set an even higher bar for raising them. Powell said that the Fed would hike only if inflation rises. Prices would first need to pick up speed before the Fed moves, while a change to the outlook is enough for a cut.

That triggered a sell-off of the US Dollar which has extended into the European session.

Europe has its own troubles

The old continent is not faring much better. Luis de Guindos, Vice President of the European Central Bank, has said that monetary policy has yet to reach its limits. Moreover, he added that the manufacturing slump is already hurting the labor market – probably referring to Wednesday's disappointing employment data – the economy shed 6,000 net jobs in September. Moreover, the euro area's Unemployment Rate disappointed with an increase from 7.4% to 7.5%.

Other euro-zone data has been unimpressive. The Consumer Price Index slowed down from 0.8% to 0.7% – the slowest since 2016. On the other hand, Core CPI surprised by 1.1%. Both figures are from the ECB's 2% target. 

Gross Domestic Product beat expectations with 0.2% quarterly, but that has been insufficient to stop the annual deceleration to 1.1%. 

The bloc's figures could have been worse – but they are far from being satisfactory.

US data flow

In the US, the economy grew by 1.9% annualized, only a marginal slowdown. The consumer continues carrying the economy on its back (see analysis). ADP's private-sector jobs report showed an increase of 125,000, within expectations and maintaining expectations for Friday's Non-Farm Payrolls.

See US Non-Farm Payrolls Preview: The trend remains the same.

Today's US calendar features the Core Personal Consumption Expenditure (Core PCE), which is the inflation measure that the Fed targets. It is likely to drop to 1.7%. Personal Income and Personal Spending are also of interest. 

Apart from economic indicators and central banks, US-Sino trade talks continue seeing contradictory reports. On one hand, talks are advancing and top officials are set to speak on the phone on Friday. On the other hand, China is reportedly refusing to budge on structural issues and sees a deal with President Donald Trump as unfeasible. The topic has been on the backburner, but may return to the spotlight. 

End-of-month flows are set to trigger choppy trading toward the end of the day.

All in all, data, reactions to central bankers, and trade developments are set to move EUR/USD today.

EUR/USD Technical Analysis

EUR USD Technical analysis October 31 2019

The Relative Strength Index on the four-hour chart is flirting with the 70 level – indicating overbought conditions. That may trigger a correction. EUR/USD continues enjoying upside momentum and has broken above the 50 Simple Moving Average – bullish signs.

Resistance awaits at 1.1180, which is October's high point and strong resistance. Next, we find 1.1230, which was a peak in August. It is followed by 1.1250, which dates back to June, and then by 1.1390 and 1.1410.

The currency pair has support at 1.1140, which worked was a swing high in mid-October, followed by 1.1105, that provided support later this month. Next, we find 1.1070, a double bottom from recent days. The former quadruple top of 1.10 is next. 

Author

Yohay Elam

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.

More from Yohay Elam
Share:

Editor's Picks

AUD/USD rises to 0.6950 as USD slips on Fed's Warsh

AUD/USD regains traction and extends the bounce toward 0.6950 in the Asian session on Friday. Fed Chair Warsh's comments reinforce the selling pressure on the US Dollar, allowing the pair to stretch higher. Warsh said that he remains committed to delivering price stability without giving away anything on future interest rate path.

USD/JPY falls in symc with USD, gives up 158.00 after Warsh's speech

USD/JPY has come under fresh selling pressure and gives up 158.00 in the Asian session on Friday amid the emergence of fresh US Dollar selling. Fed Chair Warsh's non-committal commentary on the future tightening path, weighs on the US Dollar and the pair.

Gold looks vacillating above $4,150

Gold alternates gains with losses below the key $4,200 mark per troy ounce on Friday. The yellow metal’s irresolute price action comes in response to a modest pullback in the US Dollar and a tepid recovery in US Treasury yields across the board.

Bitcoin steadies at $82,000: The five forces crushing the Uptober rally

Crypto markets have remained under pressure so far in October, with Bitcoin (BTC) sliding below $80,000 earlier this week before recovering to around $82,000 on Friday, as macroeconomic headwinds and cooling demand weigh on the market.

The Fed just got a second hot inflation number. Here's what the diesel signal is really saying
The Federal Reserve (Fed) faces a renewed inflation challenge after two consecutive reports showed price pressure intensifying across the US economy. September's Consumer Price Index (CPI) confirmed accelerating consumer inflation, while the Producer Price Index (PPI) revealed an even sharper rise in business costs. Behind both reports lies a common factor: energy prices.
Everyone's dumping Gold after hot US inflation. Here's why $4,100 could be a floor, not a cliff
Gold (XAU/USD) is recovering from a sharp sell-off triggered by hotter-than-expected United States (US) inflation data released on Wednesday. The precious metal briefly plunged toward $4,073 as investors increased their bets on further Federal Reserve (Fed) interest rate hikes before recovering as US Treasury yields and the US Dollar (USD) reversed their initial gains.