EUR/USD could break 1.10 resistance on US slowdown worries
Fawad Razaqzada October 3, 2019 6:29 PM
The U-turn in the US dollar has been so severe that even the likes of the Brexit-hit pound and RBA-hit Aussie have managed to rise against it. Thanks to a few noticeable data misses, the probability of a 0.25% rate cut has increased sharply. The market-implied odds of an October rate cut is up to 90% from just 40% a few days ago. Some have even talked up the prospects of a 0.5% rate cut, although this is unlikely in our view. For one, it could inadvertently send the wrong signal to the market – that a recession is coming, and the Fed is panicking. For another, as my colleague Matt Simpson informed earlier, all the prior 50 bps cuts were from much higher peaks. Still, further small cuts cannot be ruled out if incoming data deteriorates further.
After the very weak ISM manufacturing PMI earlier in the week, today saw the services PMI come in at its slowest pace in 3 years, albeit it still managed to stay above the 50 boom/bust level. With the noticeable fall in the employment component of the ISM survey, investors won’t be too confident now ahead of Friday’s nonfarm payrolls report. If NFP disappoints, then XXX/USD should be able to rise further.
Among the dollar pairs we will be watching closely ahead of – and following – the NFP report is the EUR/USD. Despite its three-day rally, this pair has been trending lower for much of the year and currently sits well below last year’s low of 1.1215. Yet, the yield spread between the German and US 10-year bond has been rising in the favour of the former. The spread has in fact been making higher highs and higher lows. This divergence suggests the EUR/USD ‘should’ be trading higher.
Thus, in the event the EUR/USD breaks through key resistance in the 1.1000 region, then we could see rates take out the prior high around 1.1110 in short order. However, if we go back below 1.10925/30 key support level again, then all bullish bets would be off again.
Source: Trading View and FOREX.com
Disclaimer: The information on this web site is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement. The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.
Futures, Options on Futures, Foreign Exchange and other leveraged products involves significant risk of loss and is not suitable for all investors. Losses can exceed your deposits. Increasing leverage increases risk. Spot Gold and Silver contracts are not subject to regulation under the U.S. Commodity Exchange Act. Contracts for Difference (CFDs) are not available for US residents. Before deciding to trade forex and commodity futures, you should carefully consider your financial objectives, level of experience and risk appetite. Any opinions, news, research, analyses, prices or other information contained herein is intended as general information about the subject matter covered and is provided with the understanding that we do not provide any investment, legal, or tax advice. You should consult with appropriate counsel or other advisors on all investment, legal, or tax matters. References to Forex.com or GAIN Capital refer to GAIN Capital Holdings Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.