EUR/USD in the bear's lair, heading for a test of 1.1820 support?

Currently, EUR/USD is trading at 1.1856, up 0.07% on the day, having posted a daily high at 1.1858 and low at 1.1845.

The German election disappointments in Merkel's party losing 10% of her party's previous support continued to weigh on the euro overnight and it has been passed over to Asian desks on the backfoot on Tuesday.

It was the worst result for her CDU/CSU bloc sine 1949 and sent the euro on a gap from 1.954 to 1.1915 in the Asia open on Sunday evening. At the same time, the far-right AfD got 12.6%, making it to the Parliament for the first time since WWII which could complicate proceedings. EUR/USD tested below the handle to 1.1896 before buyers took the rate back to 1.1934 making for a support line at 1.1860/70 where dips were supported last week. 

In terms of data and the European/US sessions, the euro continued to feel pressures around the elections news and dipped to 1.1880 in Europe, a move helped along by a miss in the German IFO survey that showed that the business climate arrived at 115.2 vs 116.00 expected and beating the previously revised 115.7. 

Revised GOP health care bill now 'impossible' to pass?

In the US session, London's bears handed the pair over at 1.1880. This price was pressured lower to 1.1832 as the day went by following not only ECB's Draghi saying he is no hurry to change accommodation, but also by fresh inflammatory comments from North Korea in a war of words. Korean foreign minister Ri Yong Ho said that US Trump's comments over the weekend were clearly a declaration of war. Safe haven flows sent the euro lower to 1.1832 the session low. 

Forex today: "An act of war" spun markets around into risk-off late trade

The Chicago Fed national activity fell from +0.03 to -0.31 (vs -0.25 expected) while Dallas Fed manufacturing activity rose from 17.0 to 21.3 (vs 11.5 expected). Fed speakers were mixed, although Dudley was bullish on the US economy and felt that the weakness in inflation was starting to pass and that tightening should continue.  Evans was not so confident that such weakness in inflation was transitory. 

EUR/USD levels

Valeria Bednarik, chief analyst at FXStreet explained that, technically, the pair is poised to extend its decline, back near the key support around 1.1820/30, where the pair bottomed these last few weeks. "The 4 hours chart shows that the price broke below a daily ascendant trend line coming from mid-August, which converges with the 200 SMA around 1.1885, making of the level a strong intraday resistance for the upcoming sessions, whilst in the same chart, technical indicators maintain a strong bearish momentum near oversold territory, supporting a bearish breakout of the August/September range."