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EUR/USD rebounds, signals short-term reversal

H.S. Borji
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The euro rebounded against the US dollar Monday, as a dearth of economic data and speculation about monetary policy kept demand for the greenback limited.

The EURUSD climbed to an intraday high of 1.2697, a more than two-week high. The pair would subsequently consolidate at 1.2629, advancing 0.53 percent. The pair is likely supported at 1.2585. On the upside, resistance is ascending from 1.2696.

In economic data, German wholesale prices declined faster than forecast in the 12 months through September. The wholesale price index declined at an annualized rate of 0.9 percent in September, following a 0.6 percent drop the previous month, the Federal Statistics Office reported today. Economists forecast a narrower drop of 0.7 percent.

Wholesale prices were up just 0.1 percent compared to August, official data showed.

There were no major US releases scheduled for Monday.

Fundamentals are unlikely to support the euro any time soon, which suggests the EURUSD will remain under pressure over the long term. However, the technical indicators suggest a short-term reversal for the pair, as investors continue to speculate about the pace and timing of a Federal Reserve interest rate hike.

The minutes of the September Federal Open Market Committee policy meetings revealed last week that Fed officials were concerned about the slowdown in the global economy, as well as the surprising strength of the US dollar. The US dollar index declined sharply following the minutes, which were released October 7. The index would subsequently rebound to nearly break even at the end of the week.

In other trading, the euro moved higher against the British pound, which has a heavy slate of economic data this week including consumer inflation, employment and average earnings. The EURGBP climbed 0.4 percent to 0.7884. The pair is testing the 0.7883 classic pivot point. Above that level, resistance is likely found at 0.7913, which is just above the 50-day exponential moving average. On the downside, initial resistance is descending from 0.7837.

The euro advanced against the Japanese yen, as the EURJPY rose 0.15 percent to 136.13. The pair faces initial support at 135.49 and resistance at 136.75.

The euro could face considerable price action this week, as a heavy slate of economic data will continue to fuel speculation about Eurozone recovery and future monetary policy.

On Tuesday the ZEW Institute will release the closely followed economic sentiment index. German investor sentiment is forecast to decline further in October, as geopolitical tensions and slow economic growth continue to weigh on confidence.

Separately, the European Commission’s statistics branch on Tuesday will report on industrial production. Eurozone industrial production is forecast to decline 1.6 percent in August, translating into an annualized drop of 0.9 percent.

The Eurozone economy is forecast to grow just 0.8 percent this year and 1.3 percent in 2015, according to the International Monetary Fund. Those estimates were down from the July forecast of 1.1 percent and 1.5 percent, respectively. Germany, which accounts for about one-third of Eurozone GDP, is forecast to grow 1.4 percent this year and 1.5 percent next year.

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