EUR/USD: Is the correction over?

2023年10月5日

During Thursday's Asian session, EUR/USD continued the positive trend initiated in the previous session, hovering around 1.0520. The movement of this pair was influenced by market caution regarding the trajectory of interest rates by the US Federal Reserve (Fed). Despite the Euro experiencing a rebound, it is not out of danger yet, as the correction could continue without posing a significant threat to the dominant trend. Analyzing the daily chart, the Euro is notably below the 20-day Simple Moving Average (SMA) and within a descending channel. Only a surpassing of 1.0660 could shift the short-term perspective towards neutrality. On the 4-hour chart, there is a potential for an upward extension in EUR/USD, especially if the price remains above the 20-period SMA at 1.0505. The immediate resistance is around 1.0555, followed by an intermediate descending trendline at 1.0570. A drop below 1.0480 would reveal recent lows at 1.0450, with possible support at 1.0430, corresponding to the lower channel boundary. Despite recovering from the lows seen in the past year against the US Dollar, the Euro struggles to maintain levels above 1.0500, remaining under pressure with a Dollar-favoring trend. The sale of government bonds is causing anxiety among investors, with German 10-year yields reaching 3%, the highest level since 2011, while US Treasury yields touched 4.88% before retracing. Higher yields, combined with slowing inflation, result in a significant increase in real yields. Data from the Eurozone shows that the Producer Price Index (PPI) rose by 0.6% in August, in line with expectations, but the annual rate slipped into negative territory from -7.6% to -11.5%. Retail sales in the Eurozone decreased by 1.2% in August, worse than market forecasts of a -0.3% slide. European Central Bank (ECB) President Christine Lagarde reiterated that interest rates would remain at sufficiently restrictive levels for as long as necessary. Markets do not anticipate another rate hike, and statements from ECB officials currently seem to have limited impact. On Thursday, Germany will report trade data. The US Dollar Index retreated on Wednesday, but the upward trend remains intact, and fundamental factors still favor the Dollar. The disappointing ADP report accentuated the correction, but upcoming employment data, including Jobless Claims on Thursday and Nonfarm Payrolls on Friday, will be crucial. In essence, I expect a false breakout of the swing high at the 1.0530 level, followed by a decline targeting 1.0465 to touch the FVG at m15. Let me know what you think. Happy trading to all from Nicola, CEO of Forex48 Trading Academy.