EURUSD is still vulnerable to the downside below its daily SMA100

Walid Salah Eldin

Active member
The Italian Govt 10yr bond yield eased down to 2.87% after spiking to 2.979% yesterday from 2.80% level on rising concerns about the Italian rising deficit, after Deputy Prime Minister Matteo Salvini agreed on a deficit at 2.4% of 2019 GDP.
What's more is that the news came from Italy to figure out that The its populist government is set to have a budget deficit target of 2.6% of GDP for the next three years.
This proposal defies EU and also the economic minister of this same government Giovanni Tria who asked for lower deficit at 1.6% of 2019 GDP.
The news put more weights on EUR which has been already struggling versus the greenback which has been underpinned by The FOMC's released projections which have shown one more 0.25% hike in cards this year, before 3 more next year, despite its acknowledge that the current interest rate is not accommodative any more in its released economic assessment yesterday following raising the fed fund rate by 0.25% to 2.25% by unanimously voting.
Removing accommodative from the FOMC assessment has been read by different ways, but the agreed thing is that the Fed will be next more data dependent, after getting out from the accommodative stance of its monetary policy.
The removing of accommodative was a right choice to be done with the quarterly release of the members dots plot to not mislead the markets which could price in closer end of this tightening cycle.
The Fed's Chief Powell indicated that the removal of 'accommodative' is a sign that monetary policy is proceeding in line with expectations. Powel said that he thinks that the current stance is still accommodative, after removing it from the statement during his press conference causing confusion and supporting the greenback.
He said also that the economy is doing well and the tightening reflects the strength of the economy, while the overall financial conditions remain accommodative. Anyway the minutes will show later whether he was approving that removing or not.
He figured out also that the Fed did not want to send a message about a certain level of Fed fund rate to show that it is accommodative or not.
The Fed foresaw the inflation to be close to its medium term 2% yearly target in the coming 3 years, expecting the annualized GDP growth expansion to run by the same a steady pace through 2019 at 2.5%, before easing down to 2% in 2020 and 1.8% in 2021 with impact of the tax reforms diminishing
While Q2 US GDP final reading came yesterday to show annualized expansion by 4.2% as the same as the previous reading after growth by 2% in the first quarter.
Aug US durable goods orders have been released yesterday to give further boost to USD by showing monthly soaring by 4.5%, while the consensus was referring to increasing by only 2% with upward revision of Jul reading to -1.2% from -1.7% monthly.
The markets will be waiting today for the release of Aug US PCE deflator which is the Fed’s preferred gauge of inflation, after showing yearly increasing in July by 2.3% to be the highest since Feb 2012, while The core PCE Figure of July which excludes food and energy has shown yearly rising by 2% which is the Fed's yearly goal and the highest reached level since April 2012.
Sep EU CPI flash reading of September will be coming by God's will earlier in the European session and it is expected to show yearly rising by 2.1% following increasing by only 2% in August, while the core figure is expected to show yearly rising again by 1% as same as August.
The figure will be closely watched after the ECB president Mario Draghi said recently that "the pickup in underlying euro-area inflation is relatively vigorous" at the European Parliament
his word sent EURUSD up above 1.18, before easing down, following the ECB’s chief economist Praet's comment that he does not think that Draghi intended to send a new signal about the interest rate outlook by this reference.

EURUSD retreated to be trading currently close to 1.1640, after facing difficulty to overcome 1.1851 resisting level which has been formed on last Jun. 14 to be satisfied by forming merely a lower high at 1.1814 in the beginning of this week.
The pair is now trading just below its daily SMA100 in a closer place to its daily SMA50, undermined over longer range by continued existence below its daily SMA200.
EURUSD is now in its second day of being below its daily Parabolic SAR (step 0.02, maximum 0.2) which is reading today 1.1811, after yesterday rising of the downside momentum.
With no sign of containing yesterday slide, Further falling can be met by intermediate support at 1.1617, whereas the pair rebounded on Sep. 17, while the next supporting level has been formed previously at 1.1525, after bouncing up from 1.13 level in the middle of last August.
EURUSD daily RSI-14 is referring now to existence inside the neutral region reading 48.214
While EURUSD daily Stochastic Oscillator (5, 3, 3) which is more sensitive to the volatility is having now its main line at 14.716 inside its oversold area below 20, leading to the downside its signal line which is higher in the neutral area at 37.146, after negative crossover just below the overbought area.

Important levels: Daily SMA50 @ 1.1611, Daily SMA100 @ 1.1651 and Daily SMA200 @ 1.1941
Experienced S&R:
S1: 1.1617
S2: 1.1525
S3: 1.1300
R1: 1.1814
R2: 1.1851
R3: 1.1996

Kind Regards
Global Market Strategist of FX-Recommends
Walid Salah El Din


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