EUR/USD is likely to have a week to remember. With volatility on the rise and many key events ahead, the market is about to start, what could be a historic December. After six months of closing between 1.09 and 1.12, the pair broke decisively to the downside and is about to post the lowest monthly close since 2002.
Currently, EUR/USD is moving with a clear bearish bias, in line with the dominant trend. Expectations of a rate hike in the US (the first since 2006) and more easing by the European Central Bank continue to be behind the decline and is likely to keep pressuring the pair. Next week will be very important for the euro and also the dollar.
The ECB will announce (or not) more easing measures and remove the uncertainty surrounding the meeting, giving support to the euro or opening the doors to more slides. In the US, the next Fed announcement will be December 16, but next week there will be two presentations of Janet Yellen and also the latest US employment report before the decision. A rate hike message from Yellen and a strong NFP report could increase even further expectations of a lift-off favoring the US dollar.
A combination of more easing by the ECB and a strong US jobs report could send EUR/USD below 2015 lows located at 1.0460 and would open the doors for a decline toward parity. The pressure on EUR/USD could continue until after the Fed’s decision when the pair could start to stabilize.
View the Live chart of the EUR/USD
From a technical perspective, the pair is moving to the downside with indicators supporting the bias in every time frame. In the monthly chart, Momentum broke again below the 100 line, while in the weekly chart it appears to be targeting 2015 lows and RSI is moving south still above extreme levels. The price is well below key daily moving averages and since October 15 it has been falling constantly without important corrections. So far there are no signals of a corrective move; but if it happens it could be significant, not necessarily stable, amid profit taking and probable squeezes. The question is where or when could the correction start.
To the upside, if it rises and holds above 1.0650, it could remove some bearish pressure. On a wider perspective, as long as it remains below 1.0850, any rally should be considered corrective; only a consolidation above could suggest that a bottom has been reached. In the short-term, a close on Friday under 1.0600, would clear the way for a test of 1.0460; below here a potential target comes at 1.0250 and then 1.0000 would be exposed.
Over the next days, volatility could rise sharply with EUR/USD moving up and/or down, particularly during Thursday and Friday. Traders should take this into account in order to avoid undesired (excessive) losses.
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