EURUSD: ‘Expect a Decline to 1.1600’ – Danske Bank
The EURUSD pair is falling today as investors react to the rising risks in the market. The pair is trading at 1.1653, which is the lowest it has been since July 27. It has also been falling for the past five consecutive days and analysts at Danske Bank believe that a fall to 1.1600 will be inevitable.
The EURUSD is reacting to the mixed economic data from the US and Europe, the rising number of coronavirus cases in Europe, and the likelihood of a contested election in the United States.
Yesterday, flash manufacturing and services PMI data showed that the previous months’ growth has started to slow. In the Eurozone, data showed that the composite PMI declined from the previous 51.9 to 50.1. This decline was because of the fact that the services PMI declined to 47.6, which was the first decline in four months. Meanwhile, in the United States, the services PMI declined from 55.0 to 54.6.
The EURUSD is also falling because of a likelihood of more political violence in the United States ahead and after the upcoming election. This will be made worse by the fact that the election results could take time before they come out.
Rising risks tend to favour the US dollar, which is the reserve currency. Indeed, the US dollar index is up by more than 0.10% in early trading. Later today, the EURUSD will react to German business survey numbers and the US new home sales numbers.
In a note, analysts at Danske Bank said that they expect the pair will fall to 1.1600. They wrote:
“Expect to see a test of 1.16 as EUR/USD continues to be weighed down heavily by the resurging uncertainty related to lockdowns/corona in Europe, weak PMIs and a too hawkish Fed.”
EURUSD technical outlook
The daily chart shows that the EURUSD pair has been forming a head and shoulders pattern. In this, the head has been at 1.200 with the neckline at about 1.1750. As you can will find in our free online trading course, a H&S is usually a bearish indicator. And yesterday, the pair moved below the neckline, which sends a signal that bears are prevailing. The price is also below the short (10-day) and medium (20-day) exponential moving averages.
Therefore, I suspect that the downward trend will continue. If it does, the next area of support will be below 1.1.1600. On the flip side, a move above the neckline at 1.1750 will invalidate this trend.