EUR/USD Technical Analysis: Bearish Control Still in Place

The EUR/USD suffered last week as it fell to the 1.1513 support level, the lowest in more than 15 months, and settled around 1.1563 at the beginning of this week's trading. The euro is still weaker due to the slowdown in economic activity in the Eurozone led by Germany due to supply chain problems and the refusal of the European Central Bank to tighten its monetary policy at this stage.

What slightly halted the pace of losses for the EUR/USD pair was Federal Reserve Chairman Jerome Powell saying that officials can be patient about raising interest rates - after announcing they will start reducing their bond purchases - but will not hesitate to take action if inflation demands it. He said this at his press conference after the FOMC said it will cut $15 billion per month starting in November. But Powell at the same time stressed that tapering does not mean that policy makers will raise interest rates any time soon, stressing the desire not to hinder potential job gains in the future.

“We don't think this is the right time to raise interest rates because we want to see the labor market recover more,” he said.

Following Powell's comments, the S&P 500, Dow Jones Industrial Average, Nasdaq 100 and Russell 2000 all closed at all-time highs for the second consecutive session - a feat not seen since January 2018.

Commenting on this, Karl Tannenbaum, chief economist at the Northern Trust, said: “I would describe it as a peaceful contradiction.” He did not appear to be someone concerned about raising interest rates sooner rather than later. The FOMC said it will cut Treasury purchases by $10 billion and mortgage-backed securities by $5 billion, marking the beginning of the end of a program aimed at protecting the economy from COVID-19. Officials decided to keep the target range for the benchmark interest rate at zero to 0.25 percent. The decision was unanimous.

Powell added that the planned pace of attrition would put them on track to finish the process by mid-2022, but it could be accelerated or slowed depending on the economic outlook. The Fed was buying $80 billion in Treasuries and $40 billion in MBS each month to help spur economic activity that was crushed in the initial pandemic shutdown and the subsequent uneven recovery.

In general, central banks in advanced economies worldwide are turning their attention to inflation risks, as supply chain bottlenecks create shortages amid strong demand. The Fed's preferred measure of inflation was at 4.4 percent in the twelve months to September, the highest level in three decades and more than double the central bank's target. Consumer expectations for prices rose to 4.2 percent in the same month, the highest in records going back to 2013.

Officials revised the language of inflation in their statement to reflect more uncertainty about how long it would last.

Technical Analysis

The general trend of the EUR/USD pair will remain bearish as long as it is stable below the 1.1600 support. It will remain vulnerable to testing lower support levels, especially if the euro gains momentum to stop the losses. The closest targets for bears are currently 1.1510, 1.1465 and 1.1390, which can push the technical indicators towards strong oversold levels. On the other hand, to change the direction of the current general bearish trend, the bulls should move towards the resistance levels 1.1775 and 1.2000. This will not happen without the EUR gaining momentum and the return of investor confidence, neither of which will happen any time soon.

The US dollar will be affected today by the statements of US Federal Reserve Chairman Jerome Powell and a number of US monetary policy officials.