EUR/USD Daily Forecast – Euro Retreats Back Towards Support

A Busy Week Ahead For the Markets

This week should be a busy one for the markets as the Fed meets on Thursday and is widely expected to cut rates once again. After that, the latest US jobs report will be released on Friday which also usually typically triggers volatility.

But ahead of that, there is some risk arising from Brexit developments that should not be ignored.

Yesterday, UK PM  Johnson failed in an attempt to call for an election, but he will try again today.

The main difference is that he needed two-thirds of the parliament to agree to yesterday’s vote where a simple majority will do today.

The opposition said they will support a new election although they have a few stipulations. The key one being that Johnson won’t push to ratify the Brexit deal on the table ahead of the elections. Further, they need some reassurance that this does not put a no-deal Brexit back on the table.

Although EUR/USD has been rising as of late on a few different drivers, I think the pair is at risk if the UK parliament decides to have an election. After all, Sterling is up nearly 5% month to date on Brexit optimism which has also kept the euro underpinned. A delay in ratifying the current Brexit deal stands to remove a lot of this optimism from the markets.

Technical Analysis

A fairly well respected horizontal level is in play in the early week at 1.1072. The significance of it is best seen on a daily chart where it held EUR/USD higher for most of August and lower in September.

I suspect a break of this level could trigger a test of the 50-day moving average which currently falls just below 1.1050.

To the upside, the 1.11 handle proved to be a hurdle yesterday. I expect that it will continue to do so. On a 4-hour chart, this level had a confluence of resistance yesterday as a recently broken rising trendline fell near the level.

Bottom Line

• The recovery in EUR/USD was short-lived, the pair appears to be making another run at support.
• Volatility is likely to increase late in the week as the Fed meets and the US jobs report is due. In the meantime, further political developments in the UK stand to move the pair.