After remaining bullish for nearly three months, the Euro started declining in early September. Even though the economy was improving and the ECB was expected to reduce the monetary stimulus, still, the currency declined against most of the G10 currencies. The decline was triggered when Mario Draghi, the ECB President, expressed his worries about the strengthening Euro.
The downtrend continued on the back of the Catalan referendum and the violent protest that took place later on. On the contrary, the unexpected hawkish stance of the Fed and Trump’s tax reform plan turned the Greenback bullish. Still, in the week ahead, we expect a bullish rally in the EURUSD pair due to the reasons given below.
Last Friday, the Federal Statistical Office (Destatis) of Germany reported a 3.6% m-o-m increase in factory orders in August, far above the 0.7% rise anticipated by analysts. In the previous month, factory orders declined 0.4%.
Elsewhere in Europe, the Bank of France reported a narrowed current account deficit of €4.50 billion in August, from €5.80 billion in July, and better than analysts’ expectation of a €5.40 billion deficit. The goods trade deficit narrowed to €3.20 billion in August, from €5.30 billion in July. On the other hand, the surplus on services grew to €0.8 billion, from €0.1 billion. Notably, without adjustment, the financial account balance turned into a surplus of €1.60 billion in August, from a deficit of €17.4 billion in the previous month.
The negative effect of the Catalan referendum is already fading as ultra-nationalist parties do not have a large support base. On the contrary, the news of the formation of a coalition government in Germany, later this week, would significantly boost the Euro.
In the US, the Bureau of Labor Statistics reported a 33,000 decline in non-farm payrolls in September. It is the first decline since September 2010. The figures also broke a 90-month streak of private-sector job growth. The decline was mainly due to hurricane Harvey and Irma. Still, analysts had expected an addition of 82,000 jobs in September. In August, the private sector added an upwardly revised 169,000 jobs.
Kathy Lien, the Managing Director of BK Asset Management, stated that recent speeches by the Fed officials indicate that the central bank may slow down the frequency of interest rate hikes in the months ahead. That dampens the prospects of a rally in the US dollar. Thus, economic data and political developments favor a short-term rally in the EURUSD pair.
The EURUSD pair is trading near a major support level of 1.1670. Furthermore, a positive divergence is also seen between the price and the MACD indicator. Thus, we can expect a bullish reversal in the EURUSD pair. The next major resistance for the pair is at 1.1910.
We may open a long position in the EURUSD pair near 1.1700, with a stop-loss order below 1.1610. If the pair moves up as anticipated, then we will exit the trade near 1.1910.
Additionally, we may opt for a call option to gain from the uptrend. A call option, which remains active until October 17th, will be picked from one of our reliable binary brokers. The option will be bought when the EURUSD pair trades near 1.1670.
Disclaimer: Any financial trading analysis offered here is our opinion and is not intended as advice or direction for investors. We cannot guarantee the success of any trades made as a consequence of this article, and we encourage traders to incorporate a strong money management strategy to limit losses when they enter the markets. Please use this article as part of your own research before formulating strategies prior to trading.
