The EUR/USD currency pair concluded the week with slight positive returns. Overnight, it then stabilized near 1.1580 after the notable decline to 1.1468 in AUD/USD that was the Aussie’s lowest level in over three months. This new movement comes at a time when the global economy is incredibly unstable. The continuing US government shutdown, now the longest in the nation’s history, is the biggest slice of that pie. As the fiscal deadlock continues, concerns about economic progress in the United States are influencing market dynamics and trader sentiment regarding the Euro and US Dollar exchange rate.
To restore upward momentum, EUR/USD would require a daily close above the 20 Simple Moving Average (SMA) located at 1.1678. If unable to do so, we could face a longer consolidation period above key support levels of 1.1017 to 1.0837. From a technical perspective the indicators are not particularly bullish. The markets are continuing to watch for signs of changes in momentum.
Technical Indicators and Market Trends
The recent EUR/USD price action demonstrates a major boundary. Price action had been tightly confined to a ~100 pip range. Today’s market is characterized by an overall lack of volatility. Traders are rightfully confused as they try to digest hot economic data and mixed geopolitical signals. The 20-day SMA is currently at 1.1594. This represents an extremely bearish level, and the moving average’s downward trajectory further exacerbates the situation.
Moreover, the 100-day SMA sits at 1.1070 whereas the 200-day SMA is at 1.0837. The close proximity of these moving averages only further reinforces that sellers remain in control on near term timeframe. EUR/USD, in particular, faces an additional obstacle to regaining any upward momentum. The take away The technical picture overall paints a risk weighted slightly to the downside. The momentum indicator lies dangerously close to its midline, capping short-term upside for the currency pair.
The Relative Strength Index (RSI) has bounced back significantly. It remains entrenched under the important 50 center-line, reflecting a neutral-to-bearish perspective for EUR/USD. It’s important for traders to remain vigilant. This second indicator points to further declines in the near future, pending a significant shift in market sentiment.
Economic Factors Influencing EUR/USD
The ongoing US government shutdown has heightened fears about the overall direction of the US economy, sending shockwaves through markets around the world. The job market and other economic indicators are still unclear. Traders are keenly watching unexpected developments that could tip the tune of the Federal Reserve’s monetary policy decisions. The indefinite political impasse has created significant uncertainty amongst investors, making them extremely risk averse to the dollar.
Plus, the latest Consumer Price Index (CPI) data showed the annual inflation rate ticked up to 3% in September, up from 2.9% in August. This increase matters not only for our communities, but for Federal Reserve policy since inflation rates are the main factor affecting interest rate decisions. The shifting balance between fighting inflation and promoting economic stability will probably be making waves on investor confidence and thus currency valuations for some time to come.
As traders assess these developments, they remain vigilant about potential shifts in monetary policy that could emerge from ongoing economic analyses. A period of economic stability is very important to the EUR/USD pair making a recovery. Any bad news can be a death knell, crushing its performance.
Future Outlook for EUR/USD
Looking forward, strong vigilance will be warranted from market participants for in the event of any persistent recovery of EUR/USD. Lastly, a weekly close above the 20 SMA at 1.1678 would be mighty important for the bulls to regain control of bullish impetus in the pair. Without a strong bounce back above this level, we risk further consolidation above the support zones. This would add to downward pressure on the Euro vs the dollar.
The bigger picture is mixed, though as the 200-day SMA continues to move higher at 1.1342, representing rising dynamic support for EUR/USD. Even with these challenges, this level has the potential to be a key floor in anchoring future action upwards, should the current price action solidify into a base.