EUR/USD Forecast: On the cliff's edge with more reasons to crash than recover

EUR/USD has been falling toward the yearly lows as the dollar gains ground.
A speech by ECB President Draghi and US GDP are set to move markets today.
Thursday's technical chart is pointing to further falls for the currency pair.

Yohay Elam FXStreet

Is the third time a charm? After EUR/USD hit 1.0926 twice in recent weeks, it is getting closer to a third attempt to break lower. Will the currency pair pierce through and collapse? Or will the double-bottom turn into a triple bottom and the pair will recover.

Fundamental factors are tilted against EUR/USD.

Factors weighing on EUR/USD

Robert Kaplan, the President of the Dallas branch of the Federal Reserve, has said that further rate cuts have "diminishing returns." Kaplan has been supportive of previous cuts and is known as a dove. His change of heart strengthens the dollar.

On the other side of the pond, Sabine Lautenshläger, a member of the European Central Bank, has announced she will step down at the end of October. Lautenshläger is a hawk and has been vocal against the ECB's recent stimulus injection. Her departure may move the ECB towards more easing – and this weighs on the euro. Her outgoing boss, Mario Draghi, will be speaking later today.

US President Donald Trump is under fire for pressuring his Ukranian counterpart Volodymir Zelensky to dig up dirt against Joe Biden – the leading Democratic candidate that may face Trump in 2020. The transcript of a call between them was released on Wednesday and added fuel to the Democrats' attempt to impeach the President. Despite the slim chances of ousting Trump, the political uncertainty weighed on markets and the risk-off sentiment boosts the greenback.

See Trump impeachment: Risk-off reaction likely only if his approval sinks

US New Home Sales beat expectations with 713K annualized in August, showing the strength of the US economy. Final US GDP figures are due out later today.

See US Second Quarter Final GDP Revision Preview: The consumer is cued

Factors boosting EUR/USD

There is only one positive development is the change of heart from Wolfgang Schäuble. The current President of the German parliament was the country's finance minister for many years and was one of the figures pushing for austerity.

He now supports a rethink of his own country's "Schwarze Null" – black zero, or deficit free – policy. His words join the ECB's call for governments to do more.

Mixed factors

The US-Sino trade front is mixed. While the world's largest economies continue talking, the US slapped sanctions on Chinese companies trading with Iran. Trump said that the sides are closer, but markets are waiting for more details.

All in all, EUR/USD has more reasons to fall than rising.

EUR/USD Technical Analysis

EUR/USD has broken below the uptrend support line that accompanied it since mid-September. It suffers from downside momentum and trades below the 50, 100, and 200 Simple Moving Averages on the four-hour chart. The Relative Strength Index (RSI) is still above 30 – currently not indicating oversold conditions.

All in all, bears are in control.

Critical support is at 1.0926 which is the 2019 low, the lowest since 2017 – and a double bottom. If this line is broken, the next levels to watch are the round number of 1.09, 1.0820, and 1.0780.

Resistance awaits at 1.0965, which worked as support late last week and as resistance this week. It is followed by 1.0995, which was a support line last week, and by 1.1025, which is the weekly high.

Author

Yohay Elam

FXStreet

Yohay is in Forex since 2008 when he founded Forex Crunch, a blog crafted in his free time that turned into a fully-fledged currency website later sold to Finixio.

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