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EUR/USD At Risk Of Further Declines

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Technical analysis of Forex market

Key Highlights

  • EUR/USD extended its decline and retested the 1.0980 support area.
  • A major bearish trend line is forming with resistance near 1.1045 on the 4-hours chart.
  • The Euro Zone CPI increased 1% in Nov 2019 (Prelim) (YoY), better than the 0.7% forecast.
  • The US ISM Manufacturing Index might increase from 48.3 to 49.4 in Nov 2019.

EUR/USD Technical Analysis

This past month, the Euro started a decent recovery from the 1.0980 support area against the US Dollar. EUR/USD recovered above 1.1050, but it struggled to climb above 1.1100 and recently trimmed all its gain.

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Looking at the 4-hours chart, the pair formed a top near the 1.1096 level and started a fresh decline below the 1.1050 support area. Besides, the pair settled below 1.1040, the 100 simple moving average (red), and the 200 simple moving average (green).

The recent decline was such that the pair traded below the last month’s low at 1.0989. A new monthly low was formed near 1.0981 and the pair is correcting losses.

It recovered above the 23.6% Fib retracement level of the downward move from the 1.1096 high to 1.0981 low. On the upside, there is a strong resistance forming near the 1.1040 and 1.1045 levels.

Further, the 50% Fib retracement level of the downward move from the 1.1096 high to 1.0981 low is likely to act as a hurdle near the 1.1040 area. More importantly, there is a major bearish trend line forming with resistance near 1.1045 on the same chart.

Therefore, a successful close above 1.1050 is needed for a fresh increase towards the 1.1100 resistance area. Conversely, EUR/USD could continue to move down below the 1.1000 support area.

A clear break below the 1.0980 support area may perhaps set the pace for more downsides towards the 1.0950 and 1.0940 levels in the near term.

Fundamentally, the Euro Zone CPI report for Nov 2019 (Prelim) was released by the Eurostat. The market was looking for a 0.7% rise in the CPI, compared with the same month a year ago.

However, the actual result was above the market forecast, as the Euro Zone CPI increased 1% in Nov 2019 (Prelim) (YoY). Looking at the Core CPI, there was a 1.3% increase, better than the 1.1% forecast.

The report added:

Looking at the main components of euro area inflation, food, alcohol & tobacco is expected to have the highest annual rate in November (2.0%, compared with 1.5% in October), followed by services (1.9%, compared with 1.5% in October), non-energy industrial goods (0.4%, compared with 0.3% in October) and energy (-3.2%, compared with -3.1% in October)

Overall, EUR/USD might correct higher, but the 1.1050 resistance holds the key. Looking at GBP/USD, the pair is gaining pace above the 1.2900 resistance area in the near term.

Upcoming Economic Releases

  • Germany’s Manufacturing PMI for Nov 2019 – Forecast 43.8, versus 43.8 previous.
  • Euro Zone Manufacturing PMI Nov 2019 – Forecast 46.6, versus 46.6 previous.
  • UK Manufacturing PMI for Nov 2019 – Forecast 48.3, versus 48.3 previous.
  • US Manufacturing PMI for Nov 2019 – Forecast 52.2, versus 52.2 previous.
  • US ISM Manufacturing Index for Nov 2019 – Forecast 49.4, versus 48.3 previous.