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EURUSD: euro bulls trying to recover the losses incurred over the unresolved Italian budget


Last week, nearly all the majors lost ground against the US dollar. Only commodity currencies made gains; namely the Aussie and Kiwi dollars. The biggest loser against the greenback was the pound (-0.64%). The loonie shed 0.62%, the Swiss franc 0.48%, the euro 0.39%, and the yen lost 0.27%. The Kiwi dollar gained 1.30%, while the Aussie rose by 0.12%.

In the US session, the euro recovered to 1.1535. The single currency was given a boost by comments from European Commissioner Pierre Moscovici, who showed a willingness to hold a constructive dialogue with Italy regarding concerns over their draft budget.

The pound rose on reports that British Prime Minister Theresa May has shown a willingness to compromise on the Irish border issue, which is a key sticking point to reaching an exit deal.

Day’s news (GMT+3):

  • 13:00 Germany: German Buba monthly report.
  • 15:30 Canada: wholesale sales (Aug).
  • 15:30 US: Chicago Fed national activity index (Sep).

Fig 1. EURUSD hourly chart.

Current situation:

The single currency showed mixed dynamics in today’s Asian session. The euro then jumped to 1.1537 as trading got underway in Europe. Buyers have shifted Friday’s high to form a bearish divergence. To see this divergence play out, we need to see the bar on the AO indicator change colour.

Our pair is taking a breather at the resistance. Considering that this divergence is forming on both the AO and CCI indicators, while the economic calendar is virtually empty, I’m expecting to see a downwards correction on the EURUSD pair today. It’s worth keeping an eye on European bonds, especially Italian ones. The higher the bond yields, the higher the risk of bankruptcy among those banks holding Italian debt.

In my forecast, I expect a correction from the 90th degree to the LB balance line. The technicals allow for a rise as far as 1.1587 given that the 90th degree is not a reversal level; however, I don’t see the pair rising any further than 1.1550 today. I’ll be interested to see some downwards movement against Friday’s rally.

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