EUR/USD meanders around 1.06 ahead of key events: European open – 31/10/2023

Asian Indices:

• Australia's ASX 200 index rose by 7.8 points (0.12%) and currently trades at 6,780.70
• Japan's Nikkei 225 index has risen by 108.08 points (0.35%) and currently trades at 30,805.04
• Hong Kong's Hang Seng index has fallen by -325.11 points (-1.87%) and currently trades at 17,081.25
• China's A50 Index has fallen by -58.73 points (-0.49%) and currently trades at 11,941.18

UK and Europe:

• UK's FTSE 100 futures are currently down -6.5 points (-0.09%), the cash market is currently estimated to open at 7,320.89
• Euro STOXX 50 futures are currently down -6 points (-0.15%), the cash market is currently estimated to open at 4,022.32
• Germany's DAX futures are currently down -5 points (-0.03%), the cash market is currently estimated to open at 14,711.54

US Futures:

• DJI futures are currently down -59 points (-0.18%)
• S&P 500 futures are currently down -16 points (-0.38%)
• Nasdaq 100 futures are currently down -86 points (-0.6%)

The Bank of Japan allowed greater flexibility for yields to move above 1%, but this came as a disappointment to traders who were expecting the central bank to abandon yield curve control altogether. And the fact that USD/JPY rallied suggests markets were betting on the BOJ doing just that. And to be fair, they may as well given yields were headed for 1% heading into the announcement. But it’s also likely the BOJ have their finger on the intervention button to cap any runaway rally on USD/JPY, which rose 80 pips following the announcement and is now meandering around the infamous 150 level.

China’s economy continued to sow according to official PMI data, with the services and composite PMIs barely expanding and the manufacturing PMI contracting at its fastest pace in three months.

EUR/JPY rose to a 5-day high and looks set to retest its YTD high set last week. GBP/JPY rose to a 2-day high and could eventually break above 184 if the BOE are not as dovish as expected this week.

The US dollar is currently the strongest FX major during Asian trade and has risen against all of its FX peers. The Japanese yen is the weakest, followed by AUD and NZD.

EUR/USD has pulled back against Monday’s moves, but has the potential to extend yesterday’s rally should inflation data from across Europe come in hot enough today. We also have the FOMC meeting looming which has seen implied volatility rise for the pair.

Events in focus (GMT+1):

• 06:00 – French consumer spending
• 07:00 – German retail sales, import/export prices
• 07:45 – French CPI
• 09:00 – Italian GDP
• 09:30 – Portuguese CPI
• 10:00 – Italian GDP
• 10:00 – Eurozone CPI, GDP
• 12:30 – Canadian GDP
• 13:00 – US house prices
• 13:45 – US Chicago PMI
• 14:00 – US Consumer Confidence (Conference Board)

EUR/USD technical analysis (daily chart):

Price action on the EUR/USD chart remains within a corrective phase, plenty of overlap between swings. However, it is difficult to saw whether the end of the correction was seen just below 1.07 and momentum is trying to revert to the dominant bearish trend, or where it wants another crack at breaking 1.07. For that reason, I’d prefer to remain nimble and not seek home runs.

However, a prominent swig low formed on Thursday and momentum pushed higher yesterday, and prices have now retraced within Monday’s range. I’m therefor seeking a near-term long opportunity heading into the FOMC meeting. Which direction is trade after the meeting is likely down to how hawkish (or not) the market perceived the Fed to be.

EUR/USD technical analysis (daily chart):

Prices have pulled back to an interesting area on the 1-hour chart, as EUR/USD seems to have found support around the weekly pivot point and last week’s VPOC (volume point of control). RSI (2) is also overbought, so I am now seeking evidence that a swing low has formed. If prices instead pull back further, I’d then look for the rising trendline to provide support and a potential swing low.

-- Written by Matt Simpson

Follow Matt on Twitter @cLeverEdge