On Tuesday, the EUR/USD pair dropped by 0.6%, hitting a low of 1.1050 before rebounding slightly. This decline was driven by escalating geopolitical tensions and disappointing economic data from both Europe and the US. As investors shift focus to Friday’s Nonfarm Payrolls (NFP) report, the market remains on edge, with risk-off flows bolstering the US Dollar.
Key Takeaways
- EUR/USD Declines: The pair dropped to its lowest level in almost a month, finding support at 1.1050.
- Weak Inflation Data: EU inflation, measured by the Harmonized Index of Consumer Prices (HICP), fell faster than expected, dragging down sentiment for the Euro.
- Geopolitical Risks: Heightened tensions in the Middle East, with Iran launching missile attacks on Israel, further spurred risk aversion, strengthening the USD.
Technical Analysis
Daily Chart Overview
- Fibonacci Levels: The daily chart highlights a significant pullback from the 0.786 Fibonacci retracement level at 1.1099, with support found at 1.1050, closely aligning with the 0.618 Fibonacci level at 1.0961.
- Ascending Channel: The EUR/USD remains in an ascending channel, though recent price action suggests weakening bullish momentum as the pair approaches the lower bounds of the channel.
- Key Support Levels: A break below 1.1050 could lead to a test of the next support at 1.0960, and further down, 1.0863 could come into play if bearish pressure continues.
4-Hour Chart Overview
- Break of Structure (BOS): The 4-hour chart shows a recent Break of Structure (BOS) near the 1.1150 level, followed by a significant price rejection, bringing the pair down to 1.1050.
- Equilibrium and Premium Zones: The current price action suggests that EUR/USD is trading below its equilibrium level, with resistance seen near the 1.1150–1.1200 zone. Any upward movement is likely to face stiff resistance from these premium levels.
- Demand Zones: A key demand zone sits between 1.1040-1.1050, which has provided temporary relief for bulls.
Economic Data
Economic data continues to play a critical role in EUR/USD movements. Key releases include:
- EU HICP Inflation: September’s inflation data came in weaker than expected, with core HICP falling to 2.7% YoY and headline HICP dropping to 1.8% from the previous 2.2%. This decline has strengthened speculation of further ECB rate cuts.
- US ISM PMI Data: The US ISM Manufacturing PMI remained stagnant at 47.2, while the Prices Paid index contracted further to 48.3, suggesting reduced inflationary pressure in manufacturing.
- JOLTS Job Openings: August saw job openings rise to 8.04 million, although this increase may not lead to immediate hiring, as evidenced by the drop in the Employment Index from 46.0 to 43.9.
Trading Recommendation
- Bullish Scenario: If EUR/USD holds above 1.1050, a potential rebound towards 1.1150-1.1200 may be in play. Entry points can be considered near the current support level, with a stop loss below 1.1040.
- Bearish Scenario: A break below 1.1050 could open the door for further declines toward 1.0960. Traders may consider short positions if EUR/USD fails to sustain above the 1.1050 level, targeting the 1.0960-1.0900 area.
Conclusion
EUR/USD continues to face pressure from both geopolitical concerns and disappointing economic data. As the market braces for Friday’s NFP report, investors should remain cautious, particularly around key support and resistance levels. The 1.1050 level will be crucial in determining the next directional move for the pair, with both bullish and bearish scenarios offering viable trading opportunities.
