To hike or not to hike? That seems to be the questions of the month for the Fed. While in their previous meeting they showed no signs of raising interest rates, the market participants may still be factoring in the likelihood of a rate hike as Ms. USA (aka US dollar) shows off her strong dance moves against her forex dancing partners including Mr. Euro.
After the massive rally during last week’s panic, the EUR/USD pair now seems to be back to its comfort zone. This week’s US economic data could play a massive role on the pair’s fate as well as the decision on the interest rates. So let’s gear up and read the EUR/USD dancing story, shall we?
Economic Points
US Side
The fact the the US dollar is pushing to get back to her early August position in the EUR/USD pair, shows that the massive rally we saw was NOT a sign of a trend change and was a mere result of a market panic during low liquidity.
To top that, the Labor Department on Wednesday revised productivity to show it rising at a 3.3 percent annual rate, the quickest since the fourth quarter of 2013, instead of the 1.3 percent pace reported last month. So we are basically back to where we were pre-panic in terms of US economic growth prospects.
Now all eyes are on a fed rate hike. I’ll tell you what, I believe chances are very slim that the Fed decides to create yet another panic mode amid China’s meltdown. Here are the scenarios we can expect for the US dollar this month:
1- Ms. USA grows stronger with positive US economic data and dropping oil prices
[Breaking: Obama has enough U.S. senate support to to uphold Iran nuclear deal. Watch the oil prices drop further]
2- She will face a selloff if the Fed decides NOT to raise rates
3- She will go back to normal after the rate hike news panic settles.
I’d blame this whole “market panic” situations on financial news providers such as CNBC who prey on their viewer’s emotions by creating unnecessary drama to tick up their viewership.
Euro Side
During Wednesday’s London session we had some data shaking Mr. Euro:
- Spanish Unemployment Change: 21.7K actual v.s. 35.3K expected, -74.0K previous
- Euro Zone PPI m/m: -0.1% as expected, same as previous
Invest Divas/Divos are eyeing Thursday’s ECB Press Conference to get more clues on the region’s economic health
Technical Points
Despite the news coming out of the Euro zone, the EUR/USD pair seems to be following Ms.USA’s lead on the forex dance floor. I have talked about the long-term bearish outlook on the pair before, and a strong September could actually get the pair to our target at some point this year. However with the sudden rally of Black Monday, the recovery could take some time. After all, our forex dancers faced some massive injuries last week and we can’t expect them to get back on their fee right away, right?
The panic of lat week created another major problem: it messed up with our technical indicators on longer time frames, making them unreliable.
For example, on the daily chart the EUR/USD pair is now above the Ichimoku cloud while testing a pivot level of 1.13 and back to the middle band of Mr. Bollinger.
However the monthly chart shows a failed attempt of a breakout followed by getting trapped back in a rectangle chart pattern.
Therefore our best bet could be trading in shorter time frames such as the 4 hour chart which reflects the most recent price action and is less influenced by last week’s market panic.
Market Sentiment
On shorter time frames there seem to be a battle between the bears and bulls at the moment, with the bears slightly on the winning side. Being a EUR/USD bear myself, I’m eyeing 1.11 as the next bearish target.
Supports and Resistance levels
| Support Levels | Turning Point | Resistance Levels |
|---|---|---|
| 1.08 | 1.13 | 1.18 |
| 1.05 | 1.15 | 1.22 |
*Important Note: The support and resistance levels are not suitable for all traders and largely depend on your account size, margin and leverage. Book a private lesson to learn how to personalize your account based on our trading guide.
