- Summary:
- The USD remains under pressure following today’s soft ISM Non-Manufacturing PMI reading, and technical analysis suggest that the EURUSD might trade higher.
The US Dollar remains under pressure following today’s soft ISM Non-Manufacturing PMI reading. The EURUSD is short-term bullish above today’s low of 1.0938, and the price triggered an inverse head and shoulders pattern earlier today. The pattern suggests that the EURUSD may reach the 1.051 level, and is formed by treating the September 27 and October 2 lows like the left and right shoulders, while the October low is the head. On a break to today’s low of 1.0938, the trend might turn downwards.
The move higher in the pair is also triggered by the soft ISM services reading. Today’s disappointment is the second disappointing in a week for the US dollar, as the ISM manufacturing dropped deeper below the 50 boom and bust threshold level and to decade lows. The expectations of a Federal Reserve rate cut by 25-bps at the next rate meeting on October 30, has increased to 93.5% from 77% yesterday, and 63.1% one month ago. As it stands right now, a second-rate cut will follow in the December 11 meeting with a probability of 54.6%.
In the short-term, the trend will remain bullish as long we trade above the August 2 low of 1429.77. The price is about 60 dollars from the low, and about 54 dollars from the next major targets, hence the risk-reward ratio for a fresh long position is poor. However, if the price corrects 50% of the rally from the August 2, and thereby reaches 1461 level, the risk-reward ratio will improve to 2.54 times the risk.
My longer-term view on the USD remains bullish, as on a relative basis US interest rates remain higher than the European rates, that are negative, but as I explained in my US Dollar index update earlier this week, the Dollar was overbought and in need of a short-term setback before heading higher. For my longer-term outlook on the EURUSD, download our Q4 Global Market Outlook – EURUSD, Gold, Crude Oil, Bitcoin, S&P 500