EUR/USD: Weakness could accentuate on CNY slide, focus on US GDP

EUR/USD fell to 2.5-month low yesterday, even though the ECB re-affirmed the intention to end asset purchases at year-end.
The CNY slide will likely keep the EUR better bid in Europe.
The outlook for yield differentials supports USD.
An upbeat US Q3 GDP report would only add to the bullish tone around the USD.

Omkar Godbole FXStreet Contributor

The EUR/USD fell to 1.1356 yesterday - the lowest level since Aug. 16 - and was last seen trading at 1.1365.

The European Central Bank (ECB) reaffirmed its commitment to end the asset purchase program in December despite Italy's budget concerns, Brexit impasse, and recent softer data.

Still, the EUR failed to pick up a bid as comments by the newly appointed Fed Vice Chair Clarida signaled that the Fed officials remain unfazed by the recent stock market rout and hence, yield differentials are set to widen further in a USD-positive manner.

Further, the Chinese yuan fell to a fresh 21-month low against the US dollar in Asia, triggering fears of a further escalation of a trade war between the US and China. The combination of weak CNY and the resulting risk aversion could keep the common currency on the back foot in Europe.

Clearly, the path of least resistance is on the downside and a better-than-expected US Q1 GDP reading would only hasten the drop the August low of 1.13.

The data, due today 12:30 GMT, is expected to show that the annualised GDP growth rate slowed to 3.3 percent in the third quarter from the previous quarter's growth rate of 4.2 percent.

A below-forecast GDP reading would be USD-negative, still, the gains in the EUR/USD may be limited as a sharp slowdown in the world's biggest economy may not bode well for the already risk-averse equities.

EUR/USD Technical Levels

Resistance: 1.1422 (former support-turned-resistance), 1.1468 (10-day MA), 1.15 (psychological hurdle)

Support: 1.1315 (200-week MA), 1.13 (August low), 1.1187 (61.8% Fib R of 1.0341/1.2556)

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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