EUR/USD volatility soars as bears eye return to $0.9550
It was a busy start to the European session for the EUR. German Ifo figures on the business climate provided guidance.
In September, the Ifo business climate index fell from 88.6 to 84.3. Economists forecast a decline to 87.0. Sentiment towards the trade outlook and current conditions has also deteriorated.
The Business Expectations sub-component went from 80.5 to 75.2, while the Current Assessment sub-component went from 97.5 to 94.5. Economists forecast declines to 79.0 and 96.0, respectively.
According to the September survey,
- In manufacturing, the index fell sharply as companies worried about the outlook and less happy with current conditions.
- Sentiment in the services sector tumbled as business sentiment towards current conditions deteriorated. The outlook was also bleak.
- In trade, the business climate has deteriorated, with the business situation moving into negative territory for the first time since February 2021.
From the ECB, ECB Members Luis de Guindos, Fabio Panetta and ECB President Christine Lagarde will deliver speeches today. Lagarde will attract the most interest, with the ECB President speaking at the hearing before the European Parliament’s Economic and Monetary Affairs Committee.
At the time of writing, the Euro was down 0.02% at $0.96847.
A choppy start to the day saw EUR/USD hit an early high of $0.97093 before falling to a low of $0.95526.
The Euro broke through the first major support level (S1) at $0.9619 before bouncing back to $0.97. In the early morning, the second major support level (S2) at $0.9551 limited the downside.
EUR/USD needs to break through the $0.9736 pivot to target the first major resistance level (R1) at $0.9803.
However, following today’s data out of Germany, the ECB will have to make some hawkish rhetoric to support a return to $0.9750. In the event of a breakout session, the Euro would likely test resistance at Friday’s high of $0.9852 but fall below the second major resistance level (R2) at $0.9920.
The third major resistance level (R3) is located at $1.0104.
Failing to break through the pivot, EUR/USD would retest the first major support level (S1) at $0.9619. However, barring a market flight to safety, EUR/USD should avoid sub-$0.9550. The second major support level (S1) at $0.9551 should limit the downside.
The third major support level (S3) is located at $0.9367.
Looking at the EMAs and the 4-hour chart, the EMAs are sending a bearish signal. EUR/USD is trading below the 50-day EMA, currently at $0.98801. The 50-day EMA pulled back from the 100-day EMA, with the 100-day EMA pulling back from the 200-day EMA, delivering bearish signals.
A EUR/USD move through R1 ($0.9803) would give the bulls a run to the 50-day EMA ($0.98801) and R2 ($0.9920). The 200-day EMA sits at $1.00116. However, failure to break through the 50-day EMA would leave EUR/USD under pressure.
The American session
It’s a quiet day ahead on the US economic calendar. There are no US economic indicators to provide direction for GBP/USD later in the day. The lack of data will leave GBP/USD in the hands of market risk sentiment and any chatter from FOMC members.
The divergence in monetary policy and sentiment towards the global economic outlook supports a DXY move towards 115 in the near term. Direction is unlikely to change until there is a marked deterioration in US labor market conditions and a marked slowdown in consumption.