EUR/USD Starts Eventful Week On The Back Foot

31 oct. 2022

The EUR/USD pair retreated on Monday as the euro lost momentum after Eurozone and German data, while the greenback firmed on the back risk aversion and higher U.S. bond yields ahead of the Fed's meeting on Wednesday.

At the time of writing, the EUR/USD is trading at the 0.9890 area, 0.78% below its opening price.

Deeping energy concerns and soaring inflation are the main factors weighing on the shared currency. While European Central Bank's President Christine Lagarde stated on Thursday that the ECB was expecting economic activity to contract significantly in Q3, Eurostat's preliminary reading revealed on Monday that the euro area Q3 GDP expanded at an annualized rate of 2.1%, matching the market's expectations.

In addition, the eurozone inflation, measured by the HICP, jumped to 10.7% YoY in October, surpassing the market's expectations of 10.2% and accelerating from its previous reading of 9.9%.

The greenback, measured by the DXY index, is trading at the 111.50 area fueled by the rise of the U.S. 10-year bond yields, which climbed back above 4%. The Federal Reserve will announce its rate decision on Wednesday. The WIRP tool suggests a 75 bps hike is completely priced in as the FOMC aims to keep their hawkish tone and to bring inflation down.

From a technical perspective, the EUR/USD short-term bias looks neutral, as indicators in the daily chart are losing ground but remain in positive levels. The RSI holds a negative slope above its midline, while the MACD prints lower green bars.

If the EUR/USD breaks decisively below the 0.9900 area – where the upper end of a descending channel traced from February highs stands – the short-term outlook might deteriorate, with the next target at the 20-day SMA at 0.9840 followed by the 0.9800 area. On the other hand, next resistance zones are seen at parity and the 100-day SMA at 1.0075.