EURUSD: drop to 1.1796 expected

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On Thursday the 12^th of October, trading on the euro/dollar currency pair closed down. The rate fell from 1.1880 to 1.1827. At the beginning of the European session, the euro dropped further as the dollar rose across the board. It then received some support from the euro/pound cross following reports that Brexit talks had hit a deadlock. The price briefly recovered from 1.1827 to 1.1851 before falling back to 1.1827.

The euro/pound cross hit a new daily low, but the euro kept trading above 1.1824 against the dollar. Such behavior from speculators was down to a slide on the dollar across the board along with the pound’s recovery.

The pound recovered its losses after a report from the German publication Handelsblatt that the EU is prepared to offer the UK a two-year transitional deal. Such an offer, however, would depend on the UK fulfilling its financial obligations to the EU.

US data:

• Initial jobless claims (6 Oct): 243,000 (forecast: 254,000, previous: 258,000).
• PPI (Sep): 0.4% (forecast: 0.4%, previous: 0.2%).
• PPI ex food & energy (Sep): 0.4% (forecast: 0.2%, previous: 0.1%).

Day’s news (GMT+3):

• 09:00 Germany: CPI (Sep);
• 10:15 Switzerland: producer and import prices (Sep);
• 15:30 USA: CPI (Sep), retail sales (Sep);
• 17:00 USA: Michigan consumer sentiment index (Oct);
• 17:15 Eurozone: ECB vice president Constancio’s speech;
• 17:25 USA: Fed’s Evans speech;
• 18:30 USA: FOMC member Kaplan’s speech;
• 20:00 USA: Baker Hughes US oil rig count, FOMC member Powell’s speech.

Fig 1. EURUSD rate on the hourly. Source: TradingView

Yesterday’s predictions came off. Sellers first broke the trend line of the C-C channel before successfully breaking out of the D-D channel. The 45^th degree at 1.1824 is acting as a support. The price has tested this level three times.

At the time of writing, the euro is trading at 1.1847, at around the 22^nd degree. The dollar is trading down against all the majors. Nevertheless, my forecast today looks downwards, with a target of 1.1796 (67 degrees).

I can’t see the rate dropping any lower than 1.1796 at this stage, since the 38.2% Fibo level runs through 1.18 (taken from the upwards movement from 1.1670 to 1.1880). This is a strong support level.

I reckon that from 1.1880, we need to make a series of three highs, after which buyers can test 1.19 levels. Yesterday, ECN head Mario Draghi announced that interest rates would remain at their record low levels even after the regulator’s asset purchasing program comes to an end.

Since the Stochastic oscillator is up, I expect the single currency to fall against the greenback as trading gets underway in Europe. Despite this morning’s growth on the euro crosses, the euro/pound cross is in bear territory. It’ll be interesting to find out whose luck will runs out this Friday the 13^th; the bulls or the bears.