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Euro retraces to 55-day SMA

The EURUSD pair rose 0.44%, to 1.1739 on Thursday, September 23. The DXY index dropped sharply on the back of improved risk sentiment in global financial markets amid the PBoC’s injection of liquidity into the banking system. Market participants read this move as assistance to Evergrande.

By the close, the DXY fell to 92.96, paring all gains after the rally during Fed Chair Powell’s speech. The Australian, New Zealand and Canadian dollars reached new highs after the FOMC’s monetary policy announcement. The single currency rose to 1.1750.

Today’s macro agenda (GMT 3)

  • 17:00 US: new home sales (August), Fed Chair Powell speech
  • 20:00 US: Baker Hughes weekly rig count
  • Saturday: German federal election

Current outlook

In Asian trading, major currencies are showing choppy performance. The pound, the aussie and the kiwi are trying to resume yesterday's gains. Sterling strengthened on Thursday after the BoE meeting. Two MPC members voted to end QE asset purchase as soon as possible. Furthermore, interest rates could be raised while bond buying continues.

Meanwhile, FX traders remain focused on the situation surrounding the distressed Chinese developer Evergrande. The company was supposed to make a $85 mln offshore coupon payment yesterday but so far there is now news. Evergrande shares plunged 7.84% today to HK$ 2.35. The company has a 30-day grace period during which it can pay the interest, so it's still too soon to panic.

Today’s news flow is thin. The highlights include Powell's speech this evening and the election in Germany tomorrow.

Technical analysis

By the time of writing, EURUSD was trading at 1.1731. The pair is correcting after yesterday's uptrend. Given that elections will take place in Germany on Saturday amid persisting uncertainty over the Chinese developer, there is a pronounced risk of a retracement to 1.1715. Based on the hourly price model, a reversal formation has formed for the euro, with the next target in the range of 1.1790-1.1800.

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