The fact that some key foreign central banks are set to lag the Fed in terms of the pace of rate hikes, as well as fall short of the tightening currently priced into financial markets, should also weigh on foreign currencies and support the U.S. dollar for the time being.

Odds for extra weakness in the European currency remain well on the table so far with the immediate target at the 2022 low at 0.9552 (September 26). A deeper drop could challenge the round level at 0.9500 ahead of the weekly low at 0.9411 (June 17 2002).

In the longer run, the pair’s bearish view should remain unaltered while below the 200-day SMA at 1.0667.

Technical studies show indicators on daily chart in full bearish setup, with oversold conditions likely to slow bears for consolidative/corrective actions, before accelerating towards targets at 0.9301 /0.9000 (June 2002 low/psychological).

Falling 5DMA offers initial resistance at 0.9655, ahead of more significant Fibo barrier at 0.9691 (23.6% of 1.0197/0.9535), violation of which would signal correction and expose pivotal barriers at 0.9788/96 (Fibo 38.2%/falling daily Tenkan-sen).

Given the fundamental backdrop, the EUR/USD remains downward biased, though recent price action suggests an upward correction is likely. Cementing the case is the Relative Strength Index (RSI) exiting oversold conditions, aiming upwards, crossing above its 7-day RSI’s SMA. Therefore, a test of the 0.9800 figure is on the cards, but the overall bias favors the greenback.

Hawkish Initiation ? Or Completion of Bearish Correction ?

Sep 28 2022