EUR/USD : Risks are skewed to the downside
- Friday’s upbeat payrolls and wage growth figure could reinforce expectations of faster Fed rate hikes.
- The escalating US-China trade war could boost could keep the EUR under pressure.
- Short-term technical studies have adopted a bearish bias.
For EUR/USD, the path of least resistance is to the downside.
At press time, the currency pair is trading below 1.1546, having closed well below 1.1568 (38.2% Fib R of 1.1302-1.1733) on Friday.
The 5-day and 10-day moving averages (MAs) are trending south, indicating a bearish setup. Meanwhile, 14-day relative strength index (RSI) has adopted a bearish bias.
Further, the yield differential is set to widen in favor of the US dollar as Friday’s payroll data showed the ever-tightening labor market is finally leading to higher wages.
The data average hourly earnings rose by 0.4% in August, pushing the annual rate of increase to 2.9% – the fastest pace since June 2009.
A sustained rise in wage-price inflation could force the Fed to hike rates well above the neutral rate. However, as of now, wages are not rising that fast, nevertheless, Friday’s big number could lift inflation expectations and strengthen the expectations of faster Fed rate hikes.
And last but not the least, the escalating trade war between the US and China and EM concerns could boost the haven demand for the USD.
All-in-all, the pair could remain on the defensive today.
EUR/USD Technical Levels
Resistance: 1.1568 (38.2% Fib R of 1.1301/1.1733), 1.1585 (5-day MA), 1.16 (zero figure)
Support: 1.1530 (Sep. 4 low), 1.1517 (50% Fib R of 1.1301/1.1733), 1.15 (psychological level)
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