EUR/USD: Not What Draghi Was Hoping For

For months, the European Central Bank (ECB) and its President Mario Draghi have been calling for a weaker Euro exchange rate. A combination of the ECB adding more stimulus to reinvigorate the EU economy alongside the continual consistency of alarming data weakening the EU sentiment achieved some Euro weakness. However, for the bear run to continue it was repeatedly stated by analysts that demand for the USD would need to remain strong, otherwise the pair would appreciate very suddenly. Unfortunately for Draghi and the bears, USD profit taking across the board during last week resulted in theEUR/USD reversing to the upside.

This upside move was not encouraged by Euro strength but instead, USD weakness. Despite fears over Europe’s largest economy (Germany) heading for a recession intensifying following the latest German ZEW Survey falling into negative territory, heightened fears over global economic growth encouraged suspicions that the Federal Reserve might delay raising interest rates and as such, investors took profit on the Greenback.

Aside from Thursday’s EU Markit PMI’s, where economists will be looking for clues regarding whether the EU economy is stagnating, where theEUR/USD fluctuates is dependent upon how the markets react to US economic news. The United States economic release to really look out for is September’s inflation data. If suspicions arise that the Federal Reserve will unexpectedly continue QE, expect the EUR/USD to make moves towards 1.29 and 1.30.

Looking at the technicals on the Daily timeframe, the EUR/USD technical patterns are currently painting an interesting picture. Not only does the pair remain inside the same bearish channel it has been involved in for months, meaning the pair can still technically move lower - but a bullish trendline within the channel has also formed. Therefore, if the USD does weaken over the upcoming week, there is a technical pattern that will support the pair moving to the upside.

If the EUR/USD appreciation continues, resistance can be found at 1.2884 and 1.2905. If the US inflation report suggests the Federal Reserve will conclude QE as planned, the USD is likely to strengthen and as such, support can be found at 1.2705 and 1.2624.