Shifting headlines about a plethora of global events have caused last week’s currency action to be marked by volatility and investor uncertainty. Central Bank leaders are leaving a sentiment of bewilderment in the market, as investors attempt to understand last week’s FED decision to leave rates unchanged and this week’s ECB Mario Draghi’s statement about not extending QE for the 17-nation bloc. This news, in addition to, the signs of a global slowdown are the some of the events that are responsible for last week’s choppy trading in EUR/USD.
But, surprisingly, on late Thursday, risk sentiment changed when Janet Yellen basically assured the market of a likely rate hike before the end of the year, that will be followed by a “gradual pace of tightening” afterwards. This news helped to restore investor confidence, which in turn, helped to boost equities.
But, overall, the common currency still ended negative in comparison to the greenback, closing at 1.1198, which is only 102 pips below last week’s open at 1.1300. Since it is approaching the end of the month, we may see minor effects from month-end FX rebalancing and portfolio flows but this should be very limited since positions were not strongly heavy on either side of the EUR/USD instrument. Investors may choose to be idle ahead of the monthly employment numbers which come out on Friday, October 2nd, but this is not a guarantee either. On paper, unemployment is not as big of an issue as before, and although it is still a part of the FED’s dual mandate, traders may pay lesser attention to it in the light of global concerns from emerging markets and US inflation data, which is still very low.
EUR/USD Market Forecast
So, with that being said, I am expecting the EUR/USD to continue its journey to the downside. But, before that happens, there is an argument in support of the Euro being supported with demand, ahead of further declines to the downside. The Daily Chart below shows that price closed below the 21-Day MA, but above the 100 DMA. We may see a period of consolidation in range-like trading ahead of this week’s major market moving event, the Non-Farm Employment Report. The daily slow stochastic looks prepared to cycle upward, and the RSI appears to be flattening near 50.
On the 4 Hour EUR/USD chart, price closed above the 20 SMA line, but below the 100 SMA. With the slow stochastic also showing signs of cycling upward towards the “sweet spot”, there may be a case for a solid push up to 1.1230/35, where there will be consolidation for most of the week, ahead of a deeper sell-off in EUR/USD if Non-Farm report is better than expected. So, I am expecting next week’s close to be in the negative, with a bearish (dollar-positive) sentiment.
Marvin Perry has been an active trader within the Forex market since 2010. He attended the University of Illinois in Urbana/Champaign, and graduated in 2002 with a double major in Cell and Structural Biology and Chemistry. He currently serves as an FX instructor & Quantitative Analyst for the Forex Anatomy Private Trading Community called "The Lab", where he conducts live weekly trading webinars & instruction on Fundamental Analysis & Inter-Market Interpretations of dynamic asset classes and their influence on currencies.