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EUR/USD: A dead cat bounce ahead of US Q3 GDP?

EUR/USD: A dead cat bounce ahead of US Q3 GDP?

  • ECB: lower-for-longer QE extension
  • USTs push higher, USD sees renewed strength
  • Nears July-end lows

The EUR/USD pair accelerated its overnight sharp declines and went on to hit the lowest levels since July at 1.1625 in Asia, as the USD rally gained further traction heading into the US Q3 GDP release due later today.

At the time of writing, the spot is seen making minor recovery attempts near 1.1735 levels, although any recovery attempt is likely to be short-lived, following ECB’s dovish taper announcement and persistent broad-based US strength.

EUR/USD: Downside opening up towards 200-DMA at 1.1363

The spot is down more than 2 big figures since the ECB QE announcementand remains vulnerable below a break of next support placed near 1.1610 levels, as markets prefer to hold the US currency ahead of the key US GDP figures.

The greenback regained poise and rallied hard yesterday, after the US Treasury yields, especially the 10-year yields, pushed through fresh multi-year tops, in response to progress over Trump’s tax reform plans and increased odds of Taylor as the next Fed Chair.

The House of Representatives passed a budget bill, which cleared the way for tax cuts, while Politico reported that Yellen is out of the Fed Chair race, leaving Powell and Taylor as the key contenders.

However, the selling spiral in the major was triggered after the ECB announced an extension to the QE program by another nine months, or beyond if necessary, alongside a cut in the bond-buying program by EUR 30 billion per month, which highly disappointed the hawks.

Meanwhile, in the near-term, the risk remains to the downside on Fed/ ECB monetary policy divergence, optimism on the US economy and looming Spanish political woes, as attention shifts towards the highly anticipated US growth numbers for the 3rd quarter.

EUR/USD Technical Levels

Technical, on the daily chart, a head and shoulders bearish reversal are seen.

Meanwhile, to the upside, the resistances are aligned at 1.1662 (Aug lows), 1.1700/02 (round number/ daily pivot) and 1.1754/65 (10 & 100-DMA). The downside remains guarded by 1.1613 (July-end lows), below which 1.1575/67 (Fib S2/ classic S1) will be tested, opening doors for a test of 1.1363 (200-DMA).


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