EUR/USD sidelined near 50-day SMA, focus on stocks

• EUR/USD trades largely unchanged on the day near its 50-day SMA. 
• The pair risks breaching key support on continued risk aversion in stocks. 
• The options market has flipped bearish with Monday’s drop. 

EUR/USD is comatose around its 50-day simple moving average (SMA) of 1.1771, with investors waiting for fresh cues from the European stocks. 

On Monday, the pair fell by more than 0.5% from 1.1840 to 1.1732, and a. The sell-off gathered steam in Europe after major indices like Germany’s DAX, France’s CAC, and UK’s FTSE fell by over 3% in early trade, boosting haven demand for the US dollar. 

Investors sold risk assets on Covid’s resurgence in Europe, the uncertainty surrounding the US elections, and the publication of leaked papers claiming compliance failures by large banks.

If the risk aversion worsens, the EUR/USD pair will likely find acceptance below 1.1770. That would confirm a head-and-shoulders breakdown or a bearish reversal pattern on the daily chart. 

• EUR/USD Price Analysis: Teasing head-and-shoulders breakdown

The futures tied to the major European equity indices are currently indicating a flat start to trading on Tuesday. The S&P 500 futures are also trading flat to negative. 

EUR/USD’s options market, however, has turned bearish with put options or bearish bets drawing higher premium than call options or bullish bets. In other words, investors are anticipating continued risk aversion and bigger losses in the common currency. 

Apart from stock markets, the focus would be on the European Central Bank member Panetta’s speech and Eurozone Consumer Confidence for September. The US will report Existing Home Sales for August and Richmond Fed Manufacturing Index for September. Also, the Federal Reserve chairman Jerome Powell’s testimony to Congress is scheduled at 14:30 GMT. 

• EUR/USD options market flips bearish

Technical levels