- Summary:
- EUR/USD is heading for a retest of the 1.08 level. On Monday, the pair had a slight correction due to a bounce in the dollar strength index.
EUR/USD opened in the green for the third consecutive trading session thanks to the release of weak economic data from the US last week. However, it seems like the bulls have run out of steam as the pair closed the first trading session with a 0.10% loss.
The Dollar Strength Index initially took a hit after the US reported a fall in its monthly PMI numbers and a drop in its NFP data. This led to markets speculating that the Federal Reserve might reconsider its plans for interest rate hikes.
The Fed chair did warn of a rate hike if risks arise. As a result, the DXY initially plummeted below 105 points but rebounded very strongly and was up 0.2% till press time.
As the bullish momentum starts to fade in EUR/USD, investors await the speeches of the Fed chair and multiple other policymakers later this week. These speeches will give insights into the Federal Reserve’s stance on future interest rate policies.
The retreat in the 10Y US bond yield to its five-week lows also contributed to the weakness in the dollar last week. The US Treasury Department’s decision to issue $78 billion less long-term debt this quarter also aided this decline in the bond yields.
Currently, the US 10-year bond yields stand at 4.65%, down 6.9% from its 16-year high.
EUR/USD Pair Forecast
EUR to USD has bounced back approximately 2.45% after finding support at the 1.048 level. Next, I expect the 200 MA level, which lies at 1.08, to act as a resistance level in the coming days. Furthermore, a closer look at the chart below also reveals that the 200 MA lies in confluence with the bottom of the ascending channel, that the price broke earlier in September.
The confluence of the 200-day MA and the ascending channel’s bottom makes it highly probable for the pair to face resistance in this region. However, the EUR/USD forecast will flip very bullish if the pair gains acceptance above the ascending channel once again. In such a scenario, I expect another bullish leg in the coming weeks.