EUR/USD outlook: Markets not out of the woods yet

Market turbulence often presents lots of opportunities, but there is still excess froth to be shed as the unwinding of leveraged carry trades persists for now. The EUR/USD was trading lower along with gold and major European indices in the first half of Tuesday’s session. Although US indices, Nikkei futures, USD/JPY, and commodity-linked currencies—assets that had been under significant pressure—rebounded from their lows on Monday, the recovery didn’t gain much traction overnight, and so the underlying trend that has been dominant in the last few days seems to have resumed in the first half of Tuesday’s trading. This indicates that we might not be out of the woods yet, though conditions could stabilise as the week progresses. With a quieter US economic calendar ahead, there will be fewer new recessionary signals to unsettle traders, and the potential for supportive comments from Federal Reserve officials could ease market pressure. For now, the greenback has rebounded, helped in part by the stronger ISM services PMI. Still, in light of the recent events and expectations of a sharper pivot by the Fed than was previously expected, the EUR/USD outlook remains mildly positive.

Weaker Eurozone retail sales hurt euro

Today, the EUR/USD was actually trading lower and couldn’t extend its two-day rally. The euro was hurt by an unexpected 0.3% month-over-month decline in Eurozone retail sales. This has helped the dollar index recover from its multi-month lows.

Still, while the EUR/USD seems constrained at the moment, I believe that once the equity markets stabilise, we could see the euro and other major currencies strengthen more significantly against the dollar. The greenback has lost some of its yield appeal following a series of weak economic indicators pointing to a potential recession. Currencies where interest rates are much lower such as the yen, franc, and yuan have been among the major beneficiaries of a weakening US dollar so far. But that could well change.

EUR/USD technical analysis

Source: TradingView.com

The EUR/USD has hit resistance after trying unsuccessfully on Monday to stage a decisive breakout above the 1.10 handle. While it rose to its best levels since January, it then dipped on the back of the ISM services PMI data which came out stronger. It has since remained under mild pressure. Still, in light of the big drop in bond yields and expectations of a sharp pivot by the Fed, the EUR/USD outlook remains positive.

In terms of support levels to watch, the area near 1.0900 is the first line of defence for the bulls, followed by 1.0835, which will need to hold to maintain a bullish technical outlook on the EUR/USD.

In terms of upside hurdles, resistance is seen at 1.1000 which was tested on Monday and held firm. A break above it could pave the way for a run towards the prior highs of 1.1140 (December) and 1.1275 (last July).

The technical EUR/USD outlook has turned mildly bullish ever since it broke above its bearish trend line that had been in place since last July. Until something changes to suggest the bears are back in full control, the bulls will remain happy so long as we don’t break important support levels such as those mentioned above.

-- Written by Fawad Razaqzada, Market Analyst

Follow Fawad on Twitter @Trader_F_R

How to trade with City Index

You can trade with City Index by following these four easy steps:

Open an account, or log in if you’re already a customer

• Open an account in the UK
• Open an account in Australia
• Open an account in Singapore
Search for the company you want to trade in our award-winning platform
Choose your position and size, and your stop and limit levels
Place the trade

This report is intended for general circulation only. It should not be construed as a recommendation, or an offer (or solicitation of an offer) to buy or sell any financial products. The information provided does not take into account your specific investment objectives, financial situation or particular needs. Before you act on any recommendation that may be contained in this report, independent advice ought to be sought from a financial adviser regarding the suitability of the investment product, taking into account your specific investment objectives, financial situation or particular needs.

StoneX Financial Pte. Ltd., may distribute reports produced by its respective foreign entities or affiliates within the StoneX group of companies or third parties pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the report is distributed to a person in Singapore who is not an accredited investor, expert investor or an institutional investor (as defined in the Securities Futures Act), StoneX Financial Pte. Ltd. accepts legal responsibility to such persons for the contents of the report only to the extent required by law. Singapore recipients should contact StoneX Financial Pte. Ltd. at 6826 9988 for matters arising from, or in connection with the report.

In the case of all other recipients of this report, to the extent permitted by applicable laws and regulations neither StoneX Financial Pte. Ltd. nor its associated companies will be responsible or liable for any loss or damage incurred arising out of, or in connection with, any use of the information contained in this report and all such liability is hereby expressly disclaimed. No representation or warranty is made, express or implied, that the content of this report is complete or accurate.

StoneX Financial Pte. Ltd. is not under any obligation to update this report.

Trading CFDs and FX on margin carries a high level of risk that may not be suitable for some investors. Consider your investment objectives, level of experience, financial resources, risk appetite and other relevant circumstances carefully. The possibility exists that you could lose some or all of your investments, including your initial deposits. If in doubt, please seek independent expert advice. Visit www.cityindex.com/en-sg/terms-and-policies for the complete Risk Disclosure Statement.

ALL TRADING INVOLVES RISKS. LOSSES CAN EXCEED DEPOSITS.

City Index is a trading name of StoneX Financial Pte. Ltd. (“SFP”) for the offering of dealing services in Contracts for Differences (“CFD”). SFP holds a Capital Markets Services Licence issued by the Monetary Authority of Singapore for Dealing in Exchange-Traded Derivatives Contracts, Over-the-Counter Derivatives Contracts, and Spot Foreign Exchange Contracts for the Purposes of Leveraged Foreign Exchange Trading. SFP is also both Derivatives Trading and Clearing member of the Singapore Exchange (“SGX”). SFP is a wholly-owned subsidiary of StoneX Group Inc.

The information provided herein is intended for general circulation. It does not take into account the specific investment objectives, financial situation or particular needs of any particular person. You should take into account your specific investment objectives, financial situation or particular needs before making a commitment to invest, including seeking advice from an independent financial adviser regarding the suitability of the investment, under a separate engagement, as you deem fit. No representation or warranty is given as to the accuracy or completeness of this information. Consequently, any person acting on it does so entirely at their own risk.

The information does not represent an offer of, or solicitation for, a transaction in any investment product. Any views and opinions expressed may be changed without an update. To understand the risks and costs involved, please visit the section captioned “Important Information” and the “Risk Disclosure Statement”.

The information herein is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation.

StoneX Financial Pte. Ltd. 1 Raffles Place, #18-61, One Raffles Place Tower 2, Singapore 048616. Tel: 6309 1000. Co. Reg. No.: 201130598R.

This advertisement has not been reviewed by the Monetary Authority of Singapore.