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EUR/USD: the downtrend is resuming

Elizaveta Belugina, FBS

EUR/USD has breached the short-term corrective uptrend channel to the downside, and the broad downtrend is now to resume. The levels in the $1.2500 area have once again come in focus. Resistance is at $1.2740 and $1.2850.

The euro area released some better-than-expected data during the past week. German PMIs improved, so September decline may be explained by the spike in geopolitical risks. In addition, German 10-year yields are slightly above the US ones, and this is providing some support to EUR/USD.

However, the general sentiment about the euro area seems quite negative. The European Central Bank has started buying covered bonds, but right now no one thinks that this can really help to boost inflation. Moreover, the ECB will release the results of the banks’ stress tests on Sunday, and the possibility that the euro zone’s banking sector isn’t very healthy is rather high.

The new week is going to be volatile. Watch the releases of German Ifo business climate and the euro area’s flash October inflation data on Friday. In addition, the news from the US will likely shake the market. It now depends on this news: we’ll either see a bit more of consolidation or the return to October lows.

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