EURUSD: oversold

2023年10月2日

While markets are still digesting a “higher for longer” policy of both US and EU central bankers, inflation figures for both countries are showing a continuous decreasing trend. The PCE Price Index for August in the US was standing at 3.5% on a yearly basis, while core PCE was 3.9%. The PCE indicator is Fed`s favorite index for prediction of inflation in the US, which is a main reason why it is closely followed by markets. Both core and PCE figures were in line with market expectations. During the week, the inflation rate for the Euro Area was released, which shows further relaxation in inflation figures within the Eurozone. Inflation rate in September was standing at 4.3% on a yearly basis, which was a bit lower from 4.5% expected by the market. On a monthly basis, inflation in the EU rose by 0.3%. Core inflation remains elevated at 4.5% but still was a better from market expectation of 4.8%.

As for other indicators posted for the EU, Germany was in main focus during the week. Germany's IFO Business Climate index for September was 85.7, which is a small change compared to 85.8 posted previously. Germany`s GFK Consumer Confidence for October stands at -26.5 a bit higher from forecasted -26. Inflation rate in Germany preliminary for September stands at 4.5% on a yearly basis, where prices were increased by 0.3% for the month. This was somewhere in line with market expectations. Germany's unemployment rate in September at 5.7% was without change from the month before.

At the same time, the US CB Consumer Confidence index for September at level of 103 was lower from market estimate of 105.5 and revised 108.7. Durable Goods Orders for August were higher by 0.2% compared to the previous month, which was better from market forecast of negative 0.5%. Final GDP growth rate for Q2 in the US is 2.1%, and in line with market estimates. Michigan Consumer Sentiment final for September was 68.1 which was a bit higher from market estimate of 67.7.

The US economy showed significant resilience for the environment of increased interest rates, where projected GDP for this year was revised to the upside and level of 2.1%, so the USD continued to gain against EUR during the previous week. The highest weekly level reached was 1.049, after which, the currency pair reverted to the upside. Due to the sharp move to the downside, RSI clearly went to the oversold side, reaching the level of 24. From this point some reversal to the upside could be expected. Moving average of 50 days reached the MA200 line from the upside, indicating the potential for so-called “dead-cross”. It will take some time for the cross to be confirmed on charts, but it might be treated as an initial indication of a potential for a trend-change in the coming weeks.

As eurusd clearly reached the oversold side, there is high potential for a short term reversal to the upside. During the week, the support line at 1.055 has been tested, without a significant potential to be broken. A short reversal has started as of the end of the previous week, which could lead the currency pair up to the next resistance line at 1.067. At this moment, there is no indication on charts that the price could go higher from this level, except in case of some extraordinary fundamental events.

Important news to watch during the week ahead are:
Euro: there are no important news for the Euro Area scheduled for the week ahead
USD: ISM Manufacturing PMI for September, ISM Services PMI for September, Non-Farm Payrolls and Unemployment rate for September