EUR/USD: forecast for October 26-30
EUR/USD fell below 1.1100 in the past week. The pair was hit both by the negative news from the euro area and revival of the market’s demand for the US dollars.
The European Central Bank’s President Mario Draghi said that the regulator is open to increasing monetary stimulus and even discussed the possibility of the deposit rate cut. Although Draghi only suggested policy easing in December, the market got wild about it. The decline of the euro, which followed Draghi’s comments, was the biggest since the ECB announced quantitative easing (QE) in January.
Next week pay attention to German Ifo business climate index on Monday and flash inflation figures on Friday, as well as at the results of the Federal Reserve’s meeting on Wednesday.
From the technical point of view, the euro reached the lower border of the ‘flag’ formation formed after the long-term downtrend. As the flag is a continuation pattern, the single currency now looks very vulnerable for downside. There is scope for an increase in the short positions on the euro.
Support levels are 1.1070, 1.1015 and 1.0800. We believe that EUR/USD might need some further catalysts to continue its decent from the current levels like positive US data surprises, more hawkish Fed, weak euro zone’s economic readings. Anyhow, we don’t recommend to buy the euro as the ECB made it clear that it wants weaker currency. We believe that the sellers will materialize around resistance located at 1.1170 and 1.1250. A break below 1.1050 will be also a reason for careful new shorts.