EUR/USD: Focus on risk sentiment

• EUR/USD suffered a contracting triangle breakdown on Friday, courtesy of heightened global growth fears and resulting risk aversion in the equities.
• The pair could suffer a deeper drop toward 1.1215 if the equity markets continue to slide.
• The USD will likely pick up a strong bid later in the week if the Fed sounds less dovish-than-expected.

The American dollar could continue to draw bids, sending the EUR/USD pair lower toward the recent low of 1.1215 if the global equities remain risk-averse on mounting global growth fears.

The technical biased has already turned bearish as Friday’s close of 1.1303 confirmed a symmetrical triangle breakdown – a bearish continuation pattern, which indicates the sell-off from the September high of 1.1815 has resumed.

The US stocks turned risk averse on Friday, with S&P 500 falling 1.2 percent, after a below-forecast China’s retail sales, industrial production data amplified fears of a global growth slowdown. The dismal European services and manufacturing surveys further added to the malaise. More importantly, these data points overshadowed easing concerns regarding Italy’s budget and boosted the haven demand for the US dollar.

The greenback could continue to climb higher, validating the bearish breakdown on the EUR/USD chart, if the equities extend Friday’s losses. The pair, however, may have a relook at the former support-turned-resistance of the lower edge of the triangle if the equities trade in green as hinted by the 0.32 percent gain in the S&P 500 index.

The Eurozone trade balance and the November CPI, scheduled for release at 10:00 GMT, may not have a big impact on the EUR pairs.

Big moves can be seen later in the week after Wednesday’s FOMC rate decision. The pair could set new 2018 lows below 1.1215 if the US central bank sounds less dovish-than-expected, forcing markets to scale back expectations of a rate hike pause in 2019.

The markets are expecting the Fed to hike rates by 25 basis points and signal a wait-and-see approach for 2019.

EUR/USD Technical Levels