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EUR/USD Forecast: Struggling at the triple-bottom, break or bounce? Italy has the cards

  • The EUR/USD is trading at the lowest levels since August 21st.
  • Concerns about Italy and further strengthening of the US Dollar push the pair lower.
  • The charts point to oversold conditions for the pair.

The EUR/USD dipped under 1.1530, a level that supported it in September and is trading at levels last seen in August. It is a one-two punch for the world's most popular currency pair.

The European Union does not like the new Italian budget and its 2.4% deficit, above 2% set by the Commission. Comments by EU Commission President Jean-Claude Juncker and others weigh on Italian stocks, bonds, and the common currency. Italian ministers will convene later in the day. So far, they have been defiant and insist on pushing forward with the tax cuts and the Citizens' Income program. 

5-Star Leader Luigi di Maio said that France would not be treated this way. Claudio Borghi, the head of the budget committee and a Lega member said that if Italy had its currency, it would "solve most of Italy's problems." He later had a more conciliatory tone. The clash with Europe continues. 

The US Dollar continues gaining strength across the board. This is a result of the tightening policy by the Federal Reserve. After hiking rates last week, the Fed intends to increase rates four more times until the end of 2019. The ISM Manufacturing PMI for September came out at 59.8 points, slightly below expectations but still reflecting robust growth.

Fed Chair Jerome Powell will speak later in the day, at 14:45 GMT. He will talk about the outlook for employment and inflation, a topic relevant to markets. On the other hand, Powell made several public appearances of late and may find it hard to surprise markets. 

Euro-zone PPI is expected to rise once again and may have a minor influence on the Euro. However, developments in Italy will likely have a more significant effect.

Another factor for the euro is Brexit. The British government is due to present new ideas for resolving the issue for the Irish border. Former Foreign Minister Boris Johnson may throw his hat into the ring and present his candidacy to replace Prime Minister Theresa May. The Euro often moves on Brexit headlines, albeit the movements are minuscule in comparison to those seen in the GBP/USD.

EUR/USD Technical Analysis

EUR USD technical analysis chart October 2 2018

The Relative Strength Index (RSI) on the four-hour chart is below 30, indicating oversold conditions. This may result in a bounce. Other indicators are bearish: the pair trades below the 50 and 200 Simple Moving Averages and Momentum is to the downside.

1.1530 was a triple bottom in September, and the break below this level still needs to be confirmed. Lower, 1.1495 was a swing low in mid-August and is the next level to watch. Stronger support awaits at 1.1445 that temporarily capped the pair on its way up. Further down, 1.1365 and 1.1300 await.

Looking up, 1.1565 supported the pair in September and is the initial resistance line. 1.1605 served as support last month, and it is followed by 1.1650 which had the same role back then. 1.1720 and 1.1750 are next up.

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.

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