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EUR/USD advances ahead of Powell’s speech

The greenback failed to capitalize on rising yields and declined instead, dropping against most of the major currencies Friday.

The greenback quickly erased yesterday’s gains and dropped on Friday, with the EUR/USD pair trading 0.3% stronger at around 1.1650.

Earlier, German manufacturing and services PMI for October dropped on a monthly basis , sending the composite PMI from 55.5 to 52, getting dangerously close to the critical 50 threshold. The same scenario was seen for the EU composite PMI, and it slowed to 54.3 in October, down from 56.2 in September.

Given the auto sector continues to suffer, the risks are to the downside for manufacturing in Germany and the eurozone. Worse than expected PMI data today would certainly reinforce Lagarde’s position in arguing at the ECB press conference next week that inflation will prove transitory and that the energy price spike is contractionary, economists at MUFG Bank reported today.

Later in the trading session, Federal Reserve Chair Jerome Powell is due to participate in a virtual panel discussion titled “Monetary and financial stability challenges to central banks in the wake of COVID-19” at an online conference hosted by the South African Reserve Bank. He will likely talk about monetary policy, possibly influencing the markets and causing volatility.

Investors will also pay attention to the Flash services and manufacturing PMIs for October , both expected to remain near their last month’s values.

Additionally, the US Treasury Currency Report is expected to be released, providing a detailed review of global exchange rate policies, economic conditions, and central bank and government actions worldwide. The report also outlines countries that the Treasury deems currency manipulators.

Daily chart a bit neutral at the moment

Technically speaking, it looks like the EUR/USD pair has bottomed slightly above the 1.15 level. The USD continues to decline, despite soaring US yields, a rather unusual behavior. Still, the target for bulls in the current leg higher is at the 50-day moving average, currently near 1.17.

Before that, the euro needs to climb above previous lows at 1.1660 , which is a meaningful resistance. Jumping above the 1.17 level would likely cancel the medium-term bearish trend.

On the downside, the support is seen in the 1.1615 area, followed by the current cycle lows at around 1.1530. The euro continues to be supported by the declining trend line (as shown on the chart). It implies the next possible downward target near 1.15 should bears regain control.

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