Euro set to drop to new annual lows as King Dollar has all the stars lined up


  • EUR / USD fell as higher US yields boost the dollar.
  • Europe’s energy woes, dual political uncertainty in the US and fears of a slowdown could push the pair further down.
  • Wednesday’s four-hour chart paints a mixed picture.

Winter is approaching and fears that European households will find it difficult to pay their heating bills weigh on the common currency. Concerns of outright shutdowns in industries on the old continent and abroad strengthen the dollar as a safe haven.

Oil prices surged earlier this week and temporarily stole the show from natural gas prices, but the new surge in volatile commodities is once again in the spotlight. Several European leaders have called to investigate the increase and also coordinate purchases. It worked for the vaccine supply, but the gas is different.

King Dollar has regained his throne, supported by rising bond yields. After 10-year Treasury yields stabilized around 1.50%, they broke to 1.57%, the highest since June – giving the greenback additional momentum. The rise is a protracted reaction to the The Federal Reserve’s next tapering of its bond purchase program. Stimulus reduction received an additional boost.

The ISM Service Purchasing Managers Index (PMI) topped estimates with 61.9 points in September – and its inflation component also rose. Growing pressure on prices is at the root of the Fed’s urgency to withdraw its stimulus measures. A clue to the return match, employment is expected on Wednesday.

ADP’s private workforce market figures are expected to show an increase of 425,000 in September, up from 374,000 in August. Unlike in previous months, the August failure served as a timely clue to the official non-farm wage report for that month. Therefore, the payroll business could have more impact now.

See the September snapshot of ADP’s US employment development: Yes, it’s all about the Fed

Investors are also eyeing Capitol Hill, where Republicans continue to refuse to raise debt ceiling – increase the chances of an unthinkable American default later in October. President Joe Biden has suggested dropping Senate filibustering to resolve the issue.

On the spending front, it seems some movement towards compromise within the Democratic Party. Centrists would like a smaller bill and seem to settle for something between $ 1.9 trillion and $ 2.2 trillion. Will the leftists agree?

The original proposal was $ 3.5 trillion over ten years, and the passage of this bill is tied to another smaller bipartisan legislature that focuses on hard infrastructure. The news from Washington should get markets moving, but no breakthrough is likely – potentially another drag on markets and a boost for the safe haven dollar.

Overall, the euro should continue to fight energy issues and the dollar benefit from rising yields and various concerns.

EUR / USD technical analysis

The euro / dollar has resumed its decline and remains capped by the Simple Moving Average (SMA) 50, 100 and 200 on the four-hour chart. However, the dynamic remains positive. Bears need the price to drop below the 2021 low of 1.1562 to trigger a steeper fall.

Below 1.1562 the next level to watch is the round 1.15 line, followed by 1.1450.

Some resistance is waiting at 1.1590 which provided support on Tuesday. It is followed by 1.1615, which topped the pair on Tuesday, then 1.1640.

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