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EURUSD: buyers aim to extend gains

  • US consumer spending rose in August, while consumption fell.
  • US manufacturing activity came in above expectations.
  • UST yields are declining.
  • In Hong Kong, trading in shares of Chinese developer Evergrande was halted.
  • S&P 500 index futures are trading in the red.
  • OPEC is scheduled to meet on Monday.

Virtually all major currencies closed the week in the red. The sharpest decline against the US dollar was seen in the single currency (-1.09%). Smaller drops were posted by the New Zealand dollar (-1.05%), sterling (-0.90%), the franc (-0.67%) and the yen (-0.29%). Only the Canadian dollar ( 0.02%) and the Australian dollar ( 0.14%) logged gains.

On Friday, October 1, the EURUSD pair advanced 0.25% to 1.1607. Over the past week, the euro declined 0.96%. On the last trading day on the week, the DXY index fell to 94.00 amid a decrease in the US 10-year government yield, as well as profit taking ahead of the weekend. The DXY closed the week up 0.76%.

US macro data was mixed on Friday. The DXY moved higher on macro data, but failed to fend off selling ahead of the weekend. The ISM manufacturing PMI rose from 59.9 in August to 61.1 in September (vs. the median consensus that called for 61.0).

The dollar remains strong on expectations that the Fed will kick off tapering in November and possibly hike rates next year. The drop in the dollar was limited, as the standoff over the US federal debt ceiling remains unresolved.

Today’s macro agenda (GMT 3)

  • 17:00 US: factor orders, August
  • OPEC JMMC meeting

Current outlook

DXY futures fell to 93.91 right after the market opened on Monday. The decline was stopped by news from Hong Kong, where trading in shares of the Chinese developer Evergrande was halted. Accordingly, trading in all structured financial instruments related to the company was suspended.

Mainland China is offline until Friday in observance of the Golden Week holiday. Impact on the FX market was likely limited for this reason. S&P 500 index futures slid into negative territory, while 10-year UST yields continued to decline, putting pressure on the dollar.

Technical analysis

By the time of writing, the euro was trading at 1.1605. Major currencies are trading in positive territory, with the kiwi leading today’s leaderboard. We expect this currency to do well until Wednesday as traders expect the RBZN to raise rates on that day.

Monday’s economic calendar looks thin. The highlights include OPEC’s JMMC meeting and factory orders stateside. On the hourly TF, the technical picture looks favorable for buyers to breach the resistance level at 1.1610 and extend gains towards the trendline from 1.1748.

Given that China will be offline until Friday, today we will be monitoring the performance of 10-year UST yields and stock indices. If buyers are unable to break out of 1.1610 by 12 GMT, a new offensive can be expected from 1.1570 on Tuesday from 1 pm until the end of trading hours on the MT4 platform.

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