Bears Firmly In Control Of The Euro

Key Points:

  • Euro dollar declines sharply to challenge 1.10 handle.
  • Bears firmly in control as FOMC minutes point to increased rate hike chances.
  • December rate hike chances have increased to 66.7% for December.

The euro has been in trouble the last 72 hours as the currency pair has declined precipitously close to the key battleground that is the 1.10 handle. It has largely been the rampantly bullish US dollar, and the September’s hawkish FOMC minutes, which have fueled the decline and the bears are now firmly in control. However, given the renewed selling seen late in yesterday’s session, it remains to be seen just how low the euro is preparing to go.

From a purely technical perspective, the daily charts paint a particularly nasty picture for the currency pair as support is relatively limited below the 1.10 handle. In fact, a breach of this key level only faces intermediate support around the 1.0950 mark before major support structures kick in around 1.0821. Subsequently, there are plenty of reasons to expect some major declines from the pair in the coming weeks.

EUR/USD Daily Chart

However, it should be noted that the RSI Oscillator, on the daily timeframe, is currently strongly oversold which may indicate that a period of sideways moderation could be ahead before the inevitable occurs. Regardless, the 50 and 100 day moving averages have bearishly crossed to the downside so price is largely heading in one direction only and that’s down.

The fundamental perspective is equally troubling for the pair’s near term prospects given the recent ramp up in Brexit rhetoric and ongoing problems within the European banking system. In particular, as the United Kingdom continues to vacillate over when they will actually tender an Article 50 notification, volatility remains an ever-present factor for the euro.

Also, the current Deutsche Bank (DE:DBKGn) situation remains unresolved and this is impacting FDI and capital flows within the Eurozone. Subsequently, there are some very definite near term risks for the pair looming on the horizon.

Ultimately, the next few sessions are likely to be relatively critical for the euro dollar. Subsequently, if the 1.10 handle fails to hold we are likely to see a precipitous drop towards the 1.0950 and possibly lower in short order.

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