Fundamental Overview
The USD weakened across the board on renewed risk-off sentiment apparently caused by concerns around bad regional bank loans and some stress in money market rates. Moreover, the weakness in US equities contributed to depress Treasury yields as markets increased rate cut bets.
The US government shutdown continues to delay many key US economic reports. The dollar “repricing trade” needs strong US data to keep going, especially on the labour market side, so any hiccup on that front is likely to keep weighing on the greenback.
The BLS announced last week that despite the shutdown, it will release the US CPI report on October 24, so that’s going to be a key risk event. That will need to be seen in the context of US-China relations and any negative shock by that time though. If things go south, then the CPI will not matter much as growth fears will trump everything else.
On the EUR side, the single currency found support this week as the French political risk eased after Lecornu survived the no-confidence vote. On the monetary policy side, nothing has changed. The ECB is not expected to adjust rates for a long time unless we get significant deviation from their inflation target. In fact, the vast majority of ECB members is comfortable with the current rate setting and will not respond to small or short-term deviations from their target barring a clear shock in the economy.
EURUSD Technical Analysis – Daily Timeframe
On the daily chart, we can see that EURUSD broke above the major trendline and extended the rally as the buyers piled in more aggressively. The target for the buyers should be around the 1.1831 level with a break above that resistance opening the door for a new cycle high. If the price gets there, we can expect the sellers to step in with a defined risk above the 1.1831 level to position for a drop back into the 1.16 handle.
EURUSD Technical Analysis – 4 hour Timeframe
On the 4 hour chart, there’s not much we can glean from this timeframe, so we need to zoom in to see some more details.
EURUSD Technical Analysis – 1 hour Timeframe
On the 1 hour chart, we can see that we have a minor upward trendline defining the current bullish momentum. The buyers will likely lean on the trendline to keep pushing into new highs, while the sellers will look for a break lower to pile in for a drop back into the 1.16 support. The red lines define average daily range for today.
Upcoming Catalysts
We don’t have anything on the agenda today with the focus remaining on US-China developments and now on regional banks and money market rates.
