Currency Analyst since 2010

EUR/USD: forecast for Aug 31-Sept 6

By Elizaveta Belugina

EUR/USD spiked to 1.1700 during the Black Monday reaching the conversion are of several important resistances. As the market was in great stress, the low-yielding euro was used as a safe haven. Then, however, global risk sentiment improved and the pair reversed to the downside sliding below 1.1300. Data released in the euro area in the past week as usual were mixed.

In Greece political deadlock was temporary resolved as a caretaker prime minister was appointed. Vassiliki Thanou, an opponent of austerity measures, will lead the country to September elections. It’s the first time Prime Minister position in Greece is occupied by a woman.

Vassiliki Thanou, new Greek Prime Minister

The main event of the coming week for the euro will be the European Central Bank’s meeting on Thursday. There are many reasons for the ECB to show a dovish tone: inflation expectations in the euro area have fallen, oil prices have hit 6-year lows, while the euro’s exchange rate has become generally higher. Taking into account concerns about China’s economy and markets, the ECB’s President Mario Draghi will likely point out downside risks to European economy. Draghi will likely hint at the possibility of extending quantitative easing (QE) beyond September 2016. Comments like this will be negative for EUR/USD. Traders should also pay attention to the euro area’s flash August inflation figures on Monday as this release will be watched by the ECB.  

ECB President Mario Draghi

Although we expect the ECB meeting to be a bearish factor for the euro, be aware of the fact that the market’s risk sentiment and the stock markets haven’t stabilized. This can make the single currency swing to the upside. As a result, one has to be prepared for volatile trading.

The technical picture for the euro looks bearish. A shooting start will the long upper shadow is ready to form on the weekly chart. Moreover, the pair returned below 200-day MA. Support is at 1.1150, 1.0950, 1.0850 and 1.0800. A bunch of resistance levels is located at 1.1380, 1.1430 and 1.1500 ahead of 1.1700.  

EUR/USD, Daily

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