EURUSD Rate Rebound Undermined by Bearish RSI Signal

EUR / USD Rate Talking Points

EUR / USD bounces back from a fresh 2019 low to liquidate September, but Euro risks meeting a more bearish fate for the rest of the year as the European Central Bank (ECB) looks to run out of tools to tools to isolate monetary union.

EURUSD Rate Rebound Underminised by Bearish RSI Signal

EUR / USD tries to reverse the decline from last week as board officials try to downplay the risk around the Euro area, but the October opening area may keep the downside targets on the radar as the rebound after the ECB meeting unravels.

Recent comments from the Bank of Italy Governor [1[ads1]9659008] Ignazio Visco suggest that the ECB will continue to support the economy as the Governing Council member insists that the central bank "must counteract the significant risk that the economic downturn and low inflation will be permanent reduction in inflation expectations. "

Mr. Visco went on to say that" t the board of directors unanimously agrees that given the downturn in output and the significant disadvantages that weigh on the outlook, fiscal policy must make a more incisive contribution to to strengthen overall demand "and added that the recent monetary stimulus package was" not made in a hurry "as Bundesbank Vice President Sabine Lautenschlager unexpectedly resigns from the ECB's Executive Board.

  Image of ECB interest rates

It remains to be seen whether the ECB will continue to push monetary policy into unknown territory as president [1 9659014] Mario Draghi's term expires at the end of next month, but it appears that the Governing Council will continue to advocate for an unusual future guidance at its next meeting on October 24 while the central bank " continues to be ready for to adjust all of their instruments, as needed, to ensure that inflation is moving towards the target in a sustained manner . "

In contrast, the Federal Reserve seems to be taking a more patient approach to monetary policy management as chairman Jerome Powell and Co. benchmark interest rates around 1.50 to 1.75% ahead of 2020, and the Federal Open Market Committee (FOMC) may return to a wait-and-see approach at its next meeting on October 30, as the central bank delivers back-to-back rate cuts .

  Image of Fe d Fund futures

Remember that Fed Fund futures are still showing a 50/50 chance of a further 25bp reduction in October, but the recent updates to the US Non-Farm Payrolls (NFP) report may pressure the central bank to the sidelines as the economy is expected to add 145,000 jobs in September.

That said, the ECB's commitment to its price stability mandate may keep the EUR / USD under pressure as the central bank struggles to reach its inflation target, and the recent decline in the exchange rate may prove to be short-term recent developments in the Relative Strength Index (RSI) a bearish signal.

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EUR / USD Rate Daily Chart

  Image of eurusd Daily Map

Source: Trading View

  • Remember that the broader outlook for EUR / USD is tilted to the downside when the exchange rate clears the low May (1.1107) after Federal Reserve exchange rate in July, with Euro Dollar trading to a fresh annual low (1.0905) in September.
  • Recent developments in the Relative Strength Index (RSI) expect a further decline in the exchange rate while the oscillator captures the bullish formation from earlier this month.
  • For its part, the unsuccessful attempt brings close to the 1,100 (78.6% expansion) handle downside targets on the radar, with a lack of momentum to hold over the Fibonacci overlap around 1.0950 (100% expansion) to 1.0980 (78.6% retracement) as increases the risk of a move toward the 1.0830 (78.6% expansion) to the 1.0860 (23.6% retracement) range.

For more detailed analysis, check 3 Q 2019 Forecast for Euro

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— Posted by David Song, currency strategist

Follow me on Twitter at @DavidJSong.

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