EUR/USD analysis: Euro falls amid raised geopolitical risks

• EUR/USD analysis: Hamas-Israel conflict holds euro back – for now
• What are the top 3 macro events this week?
• EUR/USD technical analysis point to a possible trend reversal

 

The EUR/USD has understandably weakened along with most other risk assets following the unfortunate events at the weekend. However, all hope is not lost for the EUR/USD bulls, following last week’s recovery. Global bond yields have dipped, and this is something that could pressure US yields when they re-open on Tuesday, and possibly weigh on the dollar – especially if there are no major escalations in the Middle East. What’s more, once the focus returns to fundamentals again, then there is the potential for upcoming US data to disappoint expectations later in the week.

 

So, while it may be down, the EUR/USD is not completely out yet. Before discussing the upcoming data releases from the US late in the week, let’s have a quick look at the EUR/USD chart.

 

 

EUR/USD analysis: technical levels to watch

Source: TradingView.com

 

The EUR/USD formed a hammer-like candle on the weekly time frame last week, although there was no immediate upside follow-through as risk appetite soured because of the geopolitical events at the weekend.

 

Still, that was the first time in 12 consecutive weeks that the EUR/USD printed a green (or in this case, a white) candle. Therefore, it is worth considering the odds of a potential rally in the coming days, as rates may have formed a near-term low last week.

 

However, Monday’s price action was understandably bearish as haven flows supported the dollar and weighed on more risk-sensitive currencies such as the euro.

 

Therefore, the bulls will need to see more price action before trusting last week’s hammer candle. A move above last week’s high at 1.0600 is now going to be ideal, more so if rates also climb above 1.0635, the low from May that was broken a couple of weeks ago.

 

The bears will need a convincing break below the 1.05 handle to re-establish full control again. Unless that happens, and in light of last week’s hammer candle, they will need to be patient now.

 

 

 

What are the top 3 macro events this week?

 

 

1) FOMC meetings minutes

Wednesday, October 11

19:00 BST

 

The Fed’s hawkish pause last month sent the dollar surging higher alongside bond yields. At that meeting, the FOMC trimmed their interest rate cut projections in 2024 from 4 to just 2 and left open the possibility of one more rate increase before the end of 2023. As a result, the market was forced to revise higher its prior dovish expectations. The minutes of that meeting will reveal more insights into the Fed’s thinking and thereby help to fine-tune market’s expectations. But how much of that is now priced in? Any hawkish signals from this source is likely to have limited impact on EUR/USD, I would imagine.

 

 

 

2) US CPI

Thursday, October 12

13:30 BST

 

The market appears convinced that the Fed’s tightening cycle is over, but equally they are not expecting any rate cuts any time soon. This is because macro indicators in the US have remained relatively upbeat compared to the rest of the world. The dollar bulls will be looking for further evidence in incoming data, such as Thursday’s CPI print, to support the Fed’s view in keep rates high for long. Last month, CPI surprised to the upside, rising to 3.7% from 3.2%, ending a 14-month run of falling price pressures. But if there’s renewed weakness observed in CPI then this could alleviate some more pressure on the EUR/USD.

 

 

 

3) UoM Consumer Sentiment

Friday, October 15

15:00 BST

 

Since the middle of last year, consumer sentiment has generally been improving despite borrowing costs continuing to rise and price pressures remaining elevated. In more recent weeks, concerns over interest rates remaining high for longer in the US has caused lots of volatility in across financial markets. We have seen a sharp sell-off in stocks while bond yields have hit levels last seen before the global financial crisis. If these concerns filter through to the consumer, then spending is likely to fall on non-essential items, potentially causing the economy to come to a standstill. The UoM survey will give us an advanced indication on this front.

 

The EUR/USD bulls would be eying a weaker CPI or consumer sentiment to help turn the tide, while if the numbers are strong then this could provide renewed bearish momentum.

 

 

-- Written by Fawad Razaqzada, Market Analyst

Follow Fawad on Twitter @Trader_F_R