The EUR/USD pair has fallen to the lows of a long-term multi-month range.
This range began at the March 2015 lows at 1.0461, not far from the 1.0587 current level.
A break below last week’s 1.0515 low would probably confirm more downside to 1.0465, just above the bottom of the range.
The MACD indicator on the weekly chart is tipping below the zero-line, which is a bearish indicator, and overall, it looks like it is supporting more downside.
A break below 1.0400 would indicate a clear downside breakout from the range and an extension down to the next target at 1.0300, but potentially also much lower too.
Longer-term such a breakdown could lead to massive downside.
Ignoring spikes, the range is roughly 10 cents wide and therefore is likely to fall a similar amount – or at least between 6-10 cents - with targets therefore at between 0.95 and 0.99.
Less bearish is Commerzbank’s Karen Jones, who sees a good chance of a bounce since the RSI momentum indicator is converging bullishly with price.
This means momentum is not falling to new lows along with price, which indicates it is slowing and increases the possibility of a reversal.
If the pair does bounce, initial resistance is seen at 1.0658.
The week ahead could very well see further gains for the Dollar as significant data releases, including Non-Farm Payrolls and ISM Manufacturing help clarify the economic situation in the United States.
Positive data is likely to push up the Dollar as it will indicate inflation on the horizon and with higher inflation, comes higher interest rates from the Federal Reserve, which – in the topsy-turvy world of modern finance means a stronger currency.
What other currency has the support of an hawkish central bank?
(Hawish means wanting to raise interest rates).
Whilst a hike in December is already priced in the theme going forward will be whether the Dollar can enjoy the support of rate hikes in 2017.
"Fed Fund futures are pricing in a 100% chance of rate hike by the Fed next month and nearly 40% chance of another 25bp rate hike by May 2017. The second rate hike is not expected until the middle of next year so the dollar could extend higher if Yellen suggests that it could come sooner," says Kathy Lien, Director at BK Asset Management in New York.
A steeper trajectory may become the fetish of the new year if markets smell inflation on the horizon, especially with Trump building up for a massive stimulus push.
The positive outlook for the Dollar combined with a negative outlook for the Euro will probably translate in more downside for EUR/USD.
The Euro - particularly in the sphere of politics – is dogged by uncertainty, which seems to be the new driver for currencies as we enter a new era of extremist politics and politicians.
The Italian referendum on December 4 and the Austrian Presidential Election on the same day are likely to deliver verdicts in line with the trend away from establishment politics to more radical extremism.
The real test for the Euro, however, will probably be in the Spring when the French decide their President and the Netherlands looks set to elect an anti-European government.
Currently, the outlook for the Euro is looking a little better after primaries showed Francios Fillon is likely to be one of the contenders for the Presidency.
In a contest between Fillon and Marine Le Pen of the Front Nacional, Fillon would have a better chance of winning than most other competitors as he already embodies many of Le Pen’s right-wing policies in his Catholic Right wing politics.
Data to Watch for the Euro
The big release for the Euro will be November CPI at 10.00 (GMT) on Tuesday, November 30. It is expected to show a 0.6% rise YoY.
Given recent mixed signals about what the European Central Bank (ECB) is likely to do with its stimulus programme November’s inflation rate could provide the market with more clarity.
Data to Watch for the Dollar
The week kicks off with Q3 GDP, on Tuesday, November 29, at 13.30 (GMT), and is expected to come out at 3.0% instead of 2.9% previously.
Conference Board Consumer Confidence in November is forecast to come out at 101.1 from 98.6 previously.
ADP Employment Change on Wednesday, November 30, at 13.15, is expected to come out at 165k from 147k previously.
ISM Manufacturing PMI is released at 09.30 on Thursday, December 1 and is expected to come out at 52.2 from 51.9 previously.
The biggest release from the market’s perspective comes on Friday the 2nd at 13.30 in the form of Non-Farm Payrolls, which are forecast to come out at 175k in November.