Last week, EURUSD established 2-year lows, only to recover
on Friday following hawkish comments from ECB J-C Trichet
regarding an imminent rate hike in December. Reports on net
foreign capital flows in the US released on Wednesday showed
a figure of 101.9 bln. $ in September, adding further boost
to the dollar. On the downside, housing, industrial production
and manufacturing sector data from the US came out below expectations
on Thursday, keeping the EUR above the 1.1640 support level.
The pair ended the week slightly higher at 1.1773.
This week, we expect the upward move started on Friday
to continue, supporting the EUR towards 1.19. The perspective
of a ECB rate hike this year, associated with a possible near
end of Fed's tightening campaign should create enough impetus
to sustain this move from a fundamental perspective. Technically,
on the 4h charts we can see that for the last 2 weeks the
pair moved up and down within a 1.1800-1.1640 horizontal channel.
The 130 pips bounce up in EURUSD on Friday tested again the
res. level at 1.1794, which (possibly after a new failed test)
we expect to be breached this week. The next targets for the
pair could be 1.1860 (the 50% retracement of the descent from
1.2085 to 1.1640), then 1.1900, while on the downside 1.1640
stands as major support.
However, we should keep in mind the broad bearish perspective
for the pair, and the fact that interest rate differentials
still favor the greenback on a longer time frame with regard
to the other majors. We consider the EUR to be favored by
a retracement recovery, but once this phase loses steam we
may expect new tests at 1.1640 and possibly breaches below
that level into the 1.15 area.
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