Oct 21, 2022
VOT Research Desk
Market Insights, Considerations & Analytics
Under Stress Under 0.9850 Area: EUR/USD.
Gains Will Be Limited by Persistent Dollar Strength.
Potential 75bp Hike by the ECB might not be sufficient to stop a fresh Yearly low.
Fundamental Background of EUR/USD
Throughout the past week, the EUR/USD pair has struggled to find any definitive direction, and this morning was no exception. As bulls and bears continue their conflict, the pair has stayed largely range bound because next week will bring a number of important data events.
Since last week’s US CPI reading, the pair had experienced a rally, but this week’s return of the dollar bulls has stopped any effort at an upward rise. Rising Fed funds rate estimates have benefited the dollar, with markets now projecting a peak rate of roughly 5%, up from 4.75% last week. As a result of this as well as rising Treasury yields, traders have continued to view the dollar as their favorite haven, keeping it strong.
Given the abundance of important data events in the coming week, the market appears set to experience another round of volatility. No additional ECB statements are anticipated as the central bank started its blackout period yesterday; the ECB policy meeting is planned for October 27.
The current inflation figures and remarks from ECB policymaker Joachim Nagel, who suggested that inflation will likely ease progressively over the next 12 months, are not helping matters despite concerns about a potential recession for the zone. The pair is expected to print a new Yearly low because markets are still expecting a 75bp increase at the policy meeting next week.
Technically, the lack of direction can be seen in the price action as, after making a lower high in response to the US CPI, the pair was unable to make a higher high, encountering resistance near the level of 0.9850.
The price is being restrained by a symmetry triangular shape that is becoming more significant as the price sinks lower, and the long-term falling trend line is still in effect as it coincides with the 50-SMA. There will undoubtedly be more interest in and volatility around the pair given the number of data items that could act as a breakthrough trigger the following week.
As the month comes to an end, a break to the negative could result in the printing of a new Yearly low. Conversely, for parity to be restored, an upward break must surpass the 0.9850 region and the falling demand curve.
Important daily levels to keep an eye on:
Support Areas
•0.97000
•0.96320
•0.95360
Resistance Areas
•0.98500
•1.00000
