EUR/USD: China factory deflation may keep a lid on gains

EUR/USD's candlestick arrangement on the daily chart indicates the risks are skewed to the upside.
The upside, however, may remain elusive due to China's factory deflation.

Omkar Godbole FXStreet Contributor

EUR/USD charted a bullish outside bar candlestick pattern on Monday, but the upside could be capped by concerns of a deeper economic slowdown in China.

The pair eked out gains on Monday, engulfing Friday's price action and signaling a resumption of the rally from the Sept. 3 low of 1.0926. Put simply, the path of least resistance is to the higher side – more so, as the narrative is getting entrenched in the market that the EUR will pick up a strong bid if the European Central Bank (ECB) falls short of a Bazooka (rate cut and bond purchases) on Thursday.

So, while the risks are skewed to the upside, the gains could be capped by China's economic slowdown. The data released at 01:30 GMT showed China’s producer price index (PP) fell 0.8% in August from a year earlier, having dropped 0.3% in July.

China's factory deflation could hit the global economy via exports and is bad news for risk assets. Therefore, the US Dollar may remain bid in Europe due to the haven demand for Treasuries.

However, if investors buy risk, the EUR/USD pair could challenge the resistance at 1.1085 (the high of the Doji candle created on Sept. 5).

As of writing, the pair is trading at 1.1044, representing marginal losses on the day.

Technical levels

EUR/USD

Overview
Today last price	1.1044
Today Daily Change	-0.0003
Today Daily Change %	-0.03
Today daily open	1.1047

Trends
Daily SMA20	1.107
Daily SMA50	1.1148
Daily SMA100	1.1189
Daily SMA200	1.1268

Levels
Previous Daily High	1.1068
Previous Daily Low	1.1016
Previous Weekly High	1.1085
Previous Weekly Low	1.0926
Previous Monthly High	1.1251
Previous Monthly Low	1.0962
Daily Fibonacci 38.2%	1.1048
Daily Fibonacci 61.8%	1.1036
Daily Pivot Point S1	1.1019
Daily Pivot Point S2	1.0991
Daily Pivot Point S3	1.0967
Daily Pivot Point R1	1.1072
Daily Pivot Point R2	1.1096
Daily Pivot Point R3	1.1124

Author

Omkar Godbole

FXStreet Contributor

Omkar Godbole, editor and analyst, joined FXStreet after four years as a research analyst at several Indian brokerage companies.

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