EUR/USD declines after inflation miss, strong US jobs data, safe-haven flows

• EUR/USD extends losses due to the Euro’s weakness and increasing US Dollar strength. 
• The Euro depreciates due to lower inflation data; the Dollar benefits from strong jobs data. 
• An escalation of the conflict in the Middle East has further increased safe-haven flows to USD. 

EUR/USD is under pressure, trading in the 1.1060s on Wednesday, after the pair fell from 1.1135 on Tuesday, in a sell-off that amounted to a 0.60% one-day decline. 

Lower-than-expected Eurozone inflation data was partly responsible for the sharp decline. The bloc’s Harmonized Index of Consumer Prices (HICP) grew by 1.8% YoY in September, down from 2.2% previously and below expectations of 1.9%. Core inflation, meanwhile, came out at 2.7% YoY – one tenth below August’s 2.8% reading and also below expectations. 

The data indicates headline inflation has fallen back down below the European Central Bank’s (ECB) 2.0% target, and that core is on its way. It increases the chances that the ECB will cut interest rates further, which, in turn, is likely to lead to outflows and a weaker Euro. 

EUR/USD: declines exacerbated by stronger USD

EUR/USD was also pushed lower after a recovery in the US Dollar (USD) on Tuesday. 

The Greenback gained after the release of data showing a higher-than-expected rise in the number of job openings in the US, as measured by JOLTS Job Openings, which rose to 8.04 million in August from a revised-up 7.71 million in July, and beat expectations of 7.66 million.

The data is significant because of the Federal Reserve’s (Fed) recent shift to focusing on concerns around the labor market. This broadly offset weaker US manufacturing activity data as measured by the ISM Manufacturing PMI, which flatlined in contraction territory and missed expectations in September. 

EUR/USD also sold off amid an escalation in geopolitical tensions in the Middle East, which increased safe-haven flows to the US Dollar. On Tuesday evening, Iran fired about 200 missiles, including some ballistic, at Israel’s capital Tel Aviv in a revenge attack after Israel killed Hasan Nasrallah, the head of the Iran-backed militia group Hezbollah.  

More employment-related data on the horizon   

The main releases likely to impact EUR/USD on Wednesday are the Eurozone Unemployment Rate for August; US ADP Employment Change data for September and comments from Federal Reserve (Fed) officials, including Fed Governor Michelle Bowman and Richmond Fed President Thomas Barkin.

Technical Analysis: EUR/USD possibly beginning descent within multi-year range

EUR/USD has been contained within a broad multi-year range that has a ceiling  at roughly 1.1200 and a floor at around 1.0500. The pair is currently testing the top of the range but after multiple touches appears to be pulling back down.

EUR/USD Daily Chart 

EUR/USD is probably in a sideways trend on all its key timeframes (short, medium, and long-term) and since it is a principle of technical analysis that “the trend is your friend” the odds favor a continuation of this sideways trend, which in this case means move back down towards the range lows.

Prices now appear to be beginning a down leg. They have reached a key support level in the form of the red 50-day Simple Moving Average (SMA) at 1.1041, which is likely to slow the sell-off at least temporarily. 

For confirmation of the start of a proper leg down prices should break through the 50-day SMA, the trendline for the last up leg, and the September 11 swing low at 1.1002. A close below 1.1000, therefore, would provide strong bearish confirmation. The downside target for such a move would be 1.0875, the 200-day SMA, followed by 1.0777 (August 1 low) and then 1.0600. 

Momentum as measured by the Moving Average Convergence Divergence (MACD) is relatively bearish over the last few days and the blue MACD line has crossed below the red signal line, suggesting more evidence the pair could be vulnerable to further weakness.