EUR/USD: outlook for October 3-7
The main source of negative impact on the euro this week were the worries about the future of Deutsche Bank. US Justice Department is demanding the bank to pay $14 billion fine to settle civil claims related to its dealings in mortgage-backed securities. There are reports that hedge funds start to withdrew money from Deutsche. It seems that German government is reluctant to provide financial help for the institution. The problems of the bank reignited fears about the condition of the European banking sector. Another German bank – Commerzbank – had unveiled plans to cut up to 10 000 jobs and suspend dividends for the first time. These concerns will keep affecting the euro.
Economic data from the euro area were mixed. German Ifo business climate index exceeded expectations and the region’s inflation rate increased from 0.2% to 0.4% in September, but the price growth doesn’t look very convincing with core inflation stagnating at 0.8% and unemployment stuck above 10%. The region’s economic calendar for the next week looks rather empty: German banks will have a holiday on Monday, European countries will release final manufacturing and services PMIs during the week and the ECB will publish accounts of its latest meeting on Thursday. All these events are of medium importance, so the Deutsche Bank saga and US nonfarm payrolls will be the main market movers.
EUR/USD once again failed to settle above the declining 100-week MA, which currently lies in 1.1225 area. Resistance is at 1.1225 and 1.1280 ahead of 1.1360 and 1.1400. At the same time, 50-day MA went above 100-week MA on the daily chart – a sign that buyers are willing to fight, so we don’t expect any strong selloff of the euro. Support is at 1.1160 (200-day MA), 1.1100 (support line from November 2015). Decline below this point will open the way down to 1.1070 and 1.1010.