EUR/USD fade the upticks – Scotiabank / Bearish momentum accelerates 1.0800 possible

FX Strategists at Scotiabank have recommended selling the pair on occasional rallies in the short term.

Key Quotes

“EURUSD is holding in a range; better Eurozone activity data this week (Germany’s IFO survey rose to its strongest since 2014 at 110.5) have failed to lift sentiment as investors believe the ECB is liable to ease policy again due to low inflation and lower inflation expectations”.

“A large EURUSD option expiry today at 1.09 (EUR 2.4bn notional) today suggests range trading may persist through early trading. We prefer sell EURUSD rallies”.

“EURUSD is consolidating recent weakness. We see limited scope for EUR gains through the low 1.09 area for now and rather look for losses to resume on a break under consolidation support at 1.0870. Intraday signals are tilting more neutral which favours range trading. Fade EUR rallies”.

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Majors keep trading within well-limited ranges this Tuesday, although the dollar remains strong, particularly against the yen and European currencies. The EUR/USD pair trades a handful of pips of the multi-month low set at 1.0859 ahead of Wall Street’s opening, in spite of a strong German IFO survey released early Europe, showing that confidence among German business rose to its highest in over two years, with the business climate index up to 110.5 in October. Expectations rose to 106.1 from previous 104.5, while the assessment of the current situation advanced to 115.00 from previous 114.7. During the upcoming session, the US will release some house price indexes, alongside with its October consumer sentiment figure. If this last beats expectations, there’s a good chance that the dollar will extend its advance further.

From a technical point of view, and in the short term, the pair is clearly bearish, given that in the 1 hour chart, the price is now extending below all of its moving averages, whilst technical indicators gain bearish tone below their mid-lines. In the 4 hours chart, the price retreated from a sharply bearish 20 SMA, while the RSI indicator is resuming its decline near oversold readings, and the Momentum consolidates below its 100 level, all of which increases the risk of a new leg lower, particularly on a break below 1.0840, a long term static support zone.

Support levels: 1.0840 1.0800 1.0760

Resistance levels: 1.0910 1.0950 1.1000