The EUR/USD pair advanced throughout the week, but failed spectacularly at parity, finishing the week at around 0.9750, resulting in a slight weekly loss.
At the start of the fourth quarter, optimism reigned supreme, with Wall Street reporting massive gains and government bonds extending their gains from the previous week.
Risk appetite is supporting the EUR/USD.
Market participants expected central banks to slow the pace of quantitative tightening sooner rather than later, given the growing likelihood of a global recession.
The Reserve Bank of Australia raised the cash rate by 25 basis points, which was less than expected, fueling speculation and demand for high-yielding assets.
The good vibes, however, did not last long. The euro began to lose value on Wednesday, as the EU proposed new sanctions against Russia for its February invasion of Ukraine.
Following the illegal annexation of the regions of Donetsk, Luhansk, Kherson, and Zaporizhzhia, sanctions were imposed, which included a price ceiling on Russian oil as well as restrictions on imports and exports from and to the country.
The European Union Is in Danger.
Furthermore, sluggish EU statistics reawakened fears of a European economic downturn, dampening the risk-positive mood. S&P Global lowered its September PMIs, indicating a worsening decline in the business sector.
At the same time, wholesale inflation in the EU rose by 43.3% year on year in August, while retail sales fell by 0.3%, with German sales falling by 1.3%.
Monetary Policy Meeting of the European Central Bank Accounts had an effect on the common currency as well. Some officials, according to the memo, favored a larger rate hike of 50 basis points.
Furthermore, the median three-year inflation forecast remained unchanged at 3%. Policymakers emphasized that while the euro's depreciation may exacerbate inflationary pressures, acting "decisively" now will eliminate the need to hike more aggressively later.
Officials at the United States Federal Reserve are more pessimistic than they have ever been.
Market sentiment deteriorated further as speakers from the United States Federal Reserve hit the airwaves, echoing their well-known hawkish tone.
Charles L. Evans of the Federal Reserve Bank of Chicago and Loretta Mester of the Cleveland Federal Reserve Bank have both stated that inflation is their primary concern.
Finally, Governor Christopher Waller stated that there is no reason for the Fed to slow its policy tightening. Meanwhile, US data has fueled expectations that the Federal Reserve will maintain its aggressive monetary tightening policy.
According to the September Nonfarm Payrolls report, the country added 265K new jobs in September, which was higher than expected but lower than the previous month.
Unemployment fell unexpectedly to 3.5%, but labor-force participation fell to 62.3%, down from 62.4% in August. The announcement came after a string of dismal US employment figures.
On Tuesday, market participants learned that the number of job openings fell dramatically in August, while layoffs and discharges remained above 1.5 million.
Furthermore, according to the Challenger Job Cuts report released on Thursday, US-based firms reported 29,989 layoffs in September, a 46.4% increase from August and a 67.7% increase from the previous year.
Finally, initial jobless claims for the week ending September 30 increased unexpectedly to 219K, exceeding forecasts of 200K. Despite mixed data, the job market appears to be strong enough to withstand rate hikes. Everything boils down to inflation.
The following week will be filled with fewer but more exciting events. The US Federal Reserve will release the Minutes of its most recent meeting on Wednesday, and the government will release the September Consumer Price Index on Thursday.
This year, annual inflation is expected to be 8.1%, slightly higher than the previous year's 8.3%. The expected core reading is 6.5%. If the CPI falls in August, it will have little impact on what the market expects the Fed to do.
Germany will release its September Harmonized Consumer Price Index, which is expected to remain unchanged at 10.9%. Finally, on Friday, the focus will be on US September Retail Sales.
Technical Analysis of the EUR/USD
The EUR/USD pair briefly traded above the 61.8% Fibonacci retracement of the 1.0197/0.0535 drop at 0.9945, but it finished the week below the 38.2% retracement at 0.9790, implying that the corrective rise has come to an end.
The pair may retest and possibly break below the lower end of the range in the coming days.
The pair also failed just ahead of the daily falling trend line from the year high at 1.1494, indicating that the bearish trend will continue in the near future, according to the weekly chart.
The 20 SMA is still well above the trend line and well below the longer ones. Meanwhile, technical indicators at oversold levels continue to show a lack of directional strength.
On a daily basis, the risk is shifted to the downside. The pair is currently trading below all of its moving averages, all of which are pointing south. Meanwhile, technical indicators are continuing to fall after failing to break through their midpoints.
The 23.6% retracement of the aforementioned daily decline provides immediate support at around 0.9690. The 0.9600 level will be monitored next, followed by the multi-year low of 0.9535.
Sellers are expected to wait for parity between 0.9870 and 0.9945. Even if the pair recovers above the latter, it must first clear the trend line at around 1.0050 in order to avoid falling.
Survey of EUR/USD Sentiment
The EUR/USD is expected to remain under selling pressure in the coming weeks, according to the FXStreet Forecast Poll. Bears dominate all time frames considered. From now until the end of the year, the pair is expected to trade in the 0.97 range.
The EUR is depicted in a negative light in the Overview chart. The three moving averages keep falling, repeating their declines and setting new annual lows.
More importantly, the monthly and quarterly perspectives indicate that an increasing proportion of market participants are now forecasting lower lows for the year below 0.9500, with probable falls below 0.9000.
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