EUR/USD Technical Analysis: Increasingly Bearish

Fridays trading session strongly supported the EUR/USD's bearish outlook as the price fell to the 1.1535 support level, a 2-week low. The pair's attempts to rebound higher last week were rewarded by testing the 1.1692 resistance level, but the euro did not find any momentum to complete the rebound, which contributed to the move last Friday. The Forex market is expecting an important trading week, including a US Federal Reserve policy update and the announcement of US job numbers.

After further easing of the pandemic-related restrictions, economic growth in the Eurozone improved in the third quarter, supported by the strong performance of France, while Germany lagged behind amid supply bottlenecks. A preliminary spot estimate from Eurostat showed that the bloc's gross domestic product grew by 2.2 percent sequentially after the 2.1 percent growth in the second quarter. Economists had expected quarterly growth to slow to 2%. On an annual basis, economic growth slowed significantly to 3.7 percent from 14.2 percent in the previous quarter. However, the pace of growth was faster than economists' expectations of 3.5%.

Commenting on the figures, Andrew Kenningham, chief economist at Capital Economics, said that the strong increase in Eurozone GDP in the third quarter means the recovery phase is now almost complete in most of the Eurozone. The economist added that growth will be much slower in the fourth quarter because the boost from reopening is now over, while supply chain disruptions and slowing global demand will take their toll.

Among the big four economies, only French economic growth accelerated more than expected in the third quarter.

The French economy grew by 3 percent thanks to strong household spending and exports. This was much faster than the 1.3 percent growth recorded in the second quarter and economists' expectations of +2.1 percent.

In terms of European monetary policy, Christian Lindner, the pro-business leader seeking to become Germany's next finance minister, has warned the European Central Bank that it must resist the temptation to help debt-laden European nations as inflation accelerates. In comments posted on social media, Lindner took aim at Germany's political class for “downplaying” the risks of inflation after being drawn into a fight with two US economists over his determination to restrict government borrowing.

“If the European Central Bank falls into the fiscal policy trap of heavily indebted countries, it will have little means to fight inflation,” Lindner wrote. He said that containing price hikes is a social responsibility, and letting inflation get out of control leads to poverty.

Lindner's FDP is pushing for spending limits in the tripartite coalition talks that will determine the direction of Germany's economic policy over the next four years. While the Social Democrats, especially the Greens, want more broad fiscal policy to drive the transition to a low-carbon economy, 42-year-old Lindner argues that accumulating too much public debt is too risky. He also said he wants to take control of the Finance Ministry as a condition of joining the next government, and aims to seal the deal as the alliance begins in Berlin over the next few weeks.

Nobel Prize-winning economist Joseph Stiglitz and Adam Toze, a history professor at Columbia University, warned in the weekly Zeit newspaper that Lindner's views on public finances are “conservative cliches” that will prevent Germany from getting the investment it needs. They want the Green Party leader, Robert Habeck, to be finance minister instead.

During the first phase of coalition talks, the three parties agreed to stick to a constitutional debt curb that limits new borrowing to 0.35% of GDP. But they are at odds over how far they should go in using loopholes and off-balance sheet structures to raise additional funds.

Technical analysis of the pair

The EUR/USD currency pair returned to its broader bearish trend, and on the daily chart, a breakdown of the 1.1525 support, which is at hand, will give the bears the impetus for more violent downside breakdowns. The closest levels after that will be 1.1445 and 1.1350, which are sufficient levels to push the technical indicators towards strong oversold levels. On the upside, the bulls will move towards the 1.1700 and 1.1850 resistance levels to bring about a real and strong reversal of the general trend, which is still bearish.