EUR/USD Forecast: The thrill is gone, uptrend channel in danger

  • The EUR/USD drifts down as the dust settles from the US elections.
  • The Federal Reserve will likely remind us of monetary policy divergence.
  • The pair is trading within an uptrend channel but may challenge the lows.

The EUR/USD is trading above 1.1400 but far from the highs of 1.1500 seen on Wednesday. The US Dollar was on the back foot after Democrats won the House of Representatives in the US Mid-Term Elections. This result, alongside with Republicans retaining the Senate, was expected. A split government implies limits to President Trump's policies that have boosted the greenback in 2018.

The next significant event on the agenda is the rate decision by the Federal Reserve. The event was moved to Thursday due to the elections. This decision is the last one without a press conference by Chair Jerome Powell

The central bank is expected to leave the interest rate unchanged at 2-2.25% but will probably leave the door wide open to an increase in December. The economy is growing at a satisfactory pace, and wage growth has accelerated to 3.1%. On the other hand, business investment disappointed and inflation is not overheating, leaving room for a gradual approach. 

The Fed decision also serves as a reminder for the monetary policy divergence between the US and the euro-zone. Growth materially slowed down in the old continent with only 0.2% in Q3. There are some reports that suggest the European Central Bank will provide additional loans to banks via a new TLTRO program. The bond-buying scheme is set to conclude by year-end. 

The European Union publishes updated growth forecasts later in the day. 

Italy is preparing its response to the European Commission's rejection of its budget. An answer is due by November 13th. In the meantime, Italy's coalition parties, the 5-Star Movement and the League are embroiled in a clash over migration policies. Political analysts see a potential for a collapse of the government and early elections in the euro zone's third-largest economy. 

Data-wise, Germany's trade balance disappointed with a surplus of only 17.6 billion. US jobless claims are due later in the day.

Brexit is also a factor to consider when trading the EUR/USD. 95% of the Brexit deal has been agreed upon, and UK ministers are reading the details. The question of the backstop for the Irish border remains open, but there are high hopes for an accord in the next few days or months. A breakthrough will likely send the Pound shooting higher, and the Euro can move up as well.

EUR/USD Technical Analysis

EUR USD Technical analysis November 8 2018

The EUR/USD is trading within an uptrend channel as shown by the thick black lines on the four-hour chart. It is currently leaning toward uptrend support but maintaining a safe distance from it at the time of writing. 

The pair remains above the 50 Simple Moving Average, and Momentum remains slightly positive. 

1.1395 is the low point seen on Wednesday, and it is also very close to the SMA 50. 1.1355 was a swing low early in the week. 1.1330 was a trough in late October. Finally, 1.1300 is a critical double bottom.

1.1455 was the peak in early November. 1.1500 is not only a very round number but also the high point on Wednesday and where the 200 SMA is at the moment.

 

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