EUR/USD falls to a session low of 1.1702 as sellers look for a firm break below the 200-hour moving average
The euro has had a decent start to the week in the past two days but all of that is under threat now as sellers are looking to stage a return with a push back under the 200-hour MA (blue line) @ 1.1712 in European morning trade today.
Keep below that and the near-term bias will turn back more neutral with the 1.1700 handle a key line in the sand to watch in terms of trading sentiment.
The euro may have recovered slightly from last week's drop - mostly due to dollar weakness - but the single currency itself is now facing some headwinds on the week:
- Merkel warns that delay in EU recovery fund 'increasingly likely'
- Spain September preliminary CPI -0.4% vs -0.5% y/y expected
- Germany September preliminary CPI -0.2% vs 0.0% y/y expected
- France September preliminary CPI +0.1% vs +0.2% y/y expected
- Italy September preliminary CPI -0.5% vs -0.4% y/y expected
A delay to the recovery fund will be a major setback for the economic recovery going into next year and with the virus situation worsening - a second wave already starting - it isn't making for much optimism about the outlook moving forward.
Add that to more subdued inflation pressures, which is prompting much chatter from the ECB as seen today, it isn't a good look on how things are progressing in the euro area as a whole over the past few weeks.
The ECB may be brushing aside the drop in inflation for now, but the question remains how much can they tolerate before taking further action?
The main worry is that if such subdued conditions persist, it may lead to a de-anchoring of inflation expectations so policymakers can't be too complacent.
Perhaps the dollar's demise may be a little premature but for trading today, there are also other factors to consider in EUR/USD price action.
Short covering in the dollar was perhaps a key factor in the move last week and month-end flows today may also be suggestive of further dollar strength, so that could be part and parcel of the equation in dictating trading sentiment today as well.
Back to the technical picture, a break back below 1.1700 will be a major blow for buyers and that opens up a potential retest of the 100-hour MA (red line) @ 1.1672.
If sellers can keep the momentum to break that, then a retest of the low @ 1.1615 will be on the cards next.
As for buyers, they will have to try and keep above 1.1700 and try to move past near-term resistance around 1.1750 in order to feel more comfortable once again.
