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  • Despite German Chancellor Merkel’s governing coalition suffering heavy losses in a regional election in the state of Hesse on Sunday, EUR/USD is holding out at the start of the week and trades around Friday’s closing price at 1.1401.
  • EUR/USD bulls are testing the upper boundaries of the descending channel just shy of the 23.6% retracement Fibo located in the 1.1430s.  

The DXY has come off its highs are rate differentials come in allowing for EUR/USD to correct within the descending channel from recent lows down at 1.1337 and has done s despite the beat in real US GDP Q3. There is a sense that Q4 is expected to slow and calls for peak US dollar where the Fed is expected to pause from their rate hike cycle beyond 2019 seen in the front end rate market which is lowering the expectations of future Fed hikes.

German Chancellor Merkel’s governing coalition party has lost significant support

Meanwhile, German Chancellor Merkel’s governing coalition party has lost significant support in the wealthy state of Hesse, home to the financial centre of Frankfurt. Both t.he CDU party and SPD were -10% on the previous election in the Hesse state. “Germans are calling this a ‘schicksalswahl’, or vote of destiny. It may yet seal the fate of this country’s government – and perhaps even its leader,” The BBC reported – (The CDU polled just 28% of the vote. That was down from 38.3% in 2013. The SPD won 20% down from 30.7% in 2013. The Greens came in a close third at 19.5%).

ECB highlights

Tim Riddell, Macro Strategist at Westpac Banking Corporation highlighted the key takeaways from the recent ECB meeting:

  • ECB kept headline Policy unchanged and maintained their data dependent extended forward guidance against an outlook of balance risks.
  • Draghi held a sound/in-line stance with respect to the ECB’s progress towards targets.
  • Strong employment, wage gains and business investment were the key positives.
  • Protectionism, emerging market weakness and financial market volatility were noted risks.
  • December ECB staff projections were highlighted as important in maintaining their stance.
  • Market moves were limited. Initial positive responses were fully unwound as the Press Conference ended.

EUR/USD levels

  • Support levels: 1.1360 1.1335 1.1300  
  • Resistance levels: 1.1430 1.1470 1.1520

Valeria Bednarik, Chief Analyst at FXStreet, noted that EUR/USD  continues developing far below all of its moving averages, with a bearish 20 DMA being the nearest at around 1.1500, and more relevant, it was unable to advance beyond 1.1430, former October monthly low.

“In the mentioned chart, technical indicators have recovered alongside the price, but remain well into negative ground and with the upward potential limited. Shorter term, and according to the 4 hours chart, the upside seems limited, as the pair settled around a bearish 20 SMA, while technical indicators decelerated their advances after reaching their midlines, where they currently stand. The mentioned 1.1430 level is an immediate resistance, with follow-through beyond it exposing the 1.1520 region, should the dollar remain under pressure.”