EUR/USD: Risk Aversion Aids USD, 1.15 Support Eyed

Global Market Dynamics and the US Dollar

The EUR/USD pair is consolidating its losses below the 1.1500 mark during early European trading on Wednesday. At the time of this report, the exchange rate stands at 1.1488. A prevailing risk-averse sentiment, driven by significant sell-offs in global equity markets, is bolstering demand for the US Dollar as a safe-haven asset. Traders are scaling back their optimism regarding potential Federal Reserve interest rate cuts in December, influenced by divergent views among Fed policymakers.

💡 Investors are flocking to safety as global equities experience sharp declines, leading to increased demand for the US Dollar.

European Economic Indicators on the Horizon

Attention in Europe will be focused on the final release of the HCOB Services Purchasing Managers’ Index (PMI) for both Germany and the Eurozone. These figures are anticipated to confirm a notable acceleration in economic activity within the services sector during October. Later in the day, the Eurozone’s Producer Price Index (PPI) is expected to provide further insight into prevailing deflationary trends.

📊 Preliminary data suggests the German services sector is experiencing its strongest performance in over a year.

📊 The Eurozone’s services sector is also expected to show a continued improvement in its October PMI reading.

US Economic Data Amidst Government Shutdown

In the United States, the government shutdown has now entered its fifth week, on track to become the longest on record. This prolonged shutdown lends particular importance to the ADP Employment report, scheduled for release later today, and the ISM Services Purchasing Managers’ Index (PMI). Both indicators are expected to demonstrate mild rebounds following weaker figures reported in September.

📍 The ADP Employment Change report is predicted to indicate a net increase of 25,000 jobs in October, a slight recovery from the previous month’s decline.

📍 Analysts forecast the ISM Services PMI to rise to 50.8 in October, signaling a modest expansion after remaining at 50 in September.

Technical Outlook for EUR/USD

The EUR/USD pair is attempting to recover from three-month lows, but upward movements are consistently meeting selling pressure following a nearly 1.5% decline over the past five trading days. Technical indicators remain predominantly in negative territory. However, the 4-hour Relative Strength Index (RSI) is approaching oversold levels, while the Moving Average Convergence Divergence (MACD) indicates strong downward momentum, suggesting potential for some consolidation.

📌 The immediate outlook for EUR/USD remains bearish, with the Tuesday low around 1.1475 acting as a key point of reference.

📌 A significant downside target is identified near 1.1440, aligning with the measured target of a broken triangle pattern and a Fibonacci retracement level.

📌 August’s low, situated around 1.1390, represents a further potential support level.

For the pair to alleviate bearish pressure, it needs to reclaim the 1.1500 level. A sustained move above this threshold would shift the focus towards Wednesday’s high at 1.1530 and the former support area near 1.1545. Beyond that, the lows recorded on October 22nd and 23rd around 1.1580 serve as the next significant resistance level.

Expert Summary

In summary, the EUR/USD is facing headwinds from global risk aversion and mixed Fed signals, while key European and US economic data releases are closely watched for further market direction. Technical indicators suggest continued vulnerability for the pair, though an upward breach of 1.1500 could provide temporary relief.