EURO FORECAST, Q4 2019 ILYA SPIVAK & CHRISTOPHER VECCHIO CFA, SENIOR STRATEG ISTS EURO FORECAST, Q4 2019 DailyFX Research Team Table of Contents Euro Likely to Fall Further as Global Growth Outlook Continues to Darken .................................... 3 Euro Down on Slowing Growth, Dovish Policy Bets .............................................................................. 3 Dour Global Outlook to Feed Euro Selling Pressure ............................................................................. 3 Technical Analysis: Euro Rates on Unstable Ground versus G10 ................................................... 4 Disclaimer................................................................................................................................... 7 www.dailyfx.com 2 EURO FORECAST, Q4 2019 DailyFX Research Team Euro Likely to Fall Further as Global Growth Outlook Continues to Darken The Euro has been locked in a slow but deliberate downtrend against an average of its major currency counterparts since January 2018. For all the political drama splashed across the headlines – from deadlocked Brexit talks to destabilizing protests in France and a simmering budget crisis in Italy – the move has been remarkably conventional. Euro Down on Slowing Growth, Dovish Policy Bets The currency topped as regional growth turned a corner, peaking alongside the PMI composite gauge of regional manufacturing- and service-sector growth. Bellwether German 10-year bond yields set a swing high and turned lower in tandem. The upshot is a textbook scenario: a slowing economy stokes monetary easing bets, driving FX depreciation. The Eurozone’s downturn registered amid broader global deceleration, which cooled market-wide risk appetite. That likely explains why the lion’s share of the Euro’s losses have been borne against antirisk pillars like the US Dollar and the Japanese Yen. This weakness has been tempered by tepid gains against cycle-sensitive alternatives like the Australian and New Zealand Dollars. Dour Global Outlook to Feed Euro Selling Pressure More of the same looks likely on the horizon. The US-China trade war continues to have a chilling effect. For all the lip service being paid to periodic attempts at détente, every such effort has thus far resulted in higher tariffs and angrier recriminations. A breakthrough is possible but getting anything tangible on the books will probably prove devilishly difficult. Pockets of political dysfunction need not produce a singular, all-consuming crisis (although they certainly might). Derailing a coherent fiscal policy response to slowing growth at a time when central banks are short of conventional ammunition may be bad enough. That will put a greater burden on monetary support even as it struggles for potency, pushing officials to up the ante. Recent comments from incoming ECB President Christine Lagarde have had a decidedly dovish tilt, suggesting she foresees having to ease further. A shift in market pricing since the Governing Council www.dailyfx.com 3 EURO FORECAST, Q4 2019 DailyFX Research Team met in September suggests traders expect this to be delivered via nonstandard measures rather than through nudging nominal rates deeper into negative territory. This seems to point the way lower for the Euro. Overall risk aversion may once again skew performance such that the anti-risk side of the G10 FX spectrum outperforms against the single currency. A broadly heightened sensitivity to headline risk may trigger sharp volatility spikes one way or another but the overall trajectory seems to be as conventionally-derived as ever. Technical Analysis: Euro Rates on Unstable Ground versus G10 The Euro enters Q4’19 on unstable ground versus many of the major currencies. Midway through Q3’19, fresh yearly lows were reached by the Euro against the Japanese Yen and US Dollar, thanks in part to speculation around European Central Bank monetary policy, swirling concerns around the USChina trade war, and uncertainty over the shape of Brexit. Until these fundamental themes lose their grips on markets, it’s unlikely that the technical outlook for the Euro changes materially over the coming months. EURUSD Rate Technical Analysis: Daily Chart (September 2018 to September 2019) (Chart 1) www.dailyfx.com 4 EURO FORECAST, Q4 2019 DailyFX Research Team EURUSD rates have been able to maintain elevation after finding channel support dating back to the August and November 2018 lows as well as the descending trendline from the January and April 2019 swing highs. In the post-September ECB meeting world, a new range has been carved out between the yearly low at 1.0926 (for reference, the September ECB meeting low was 1.0927) and 1.1110, the late-April and late-May 2019 swing lows. The measured run on a bullish reversal attempt higher would be 1.1294. Conversely, a bearish breakout below 1.0926 would see a measured move of 1.0742. EURJPY Rate Technical Analysis: Weekly Chart (2008 to 2019) (Chart 2) Whereas a look at the daily timeframe for EURUSD is appropriate at the onset of Q4’19, such is not the case for EURJPY; a view of the weekly timeframe is necessary. Scrolling out to 2008, it becomes clearer that we may be in the early phases of what could be a long-term downtrend for EURJPY. The symmetrical triangle in place persisted for years with resistance from the 2008 and 2014 highs and support from the 2012, 2016, and the January 2019 Japanese Yen flash-crash lows. Given that trading is a function of both price and time, the weeks spent outside of the symmetrical triangle is a significant development unto itself. Now that the Japanese Yen flash-crash low at 118.82 has been taken out, the 2017 low at 115.24 can’t be ruled out later this year. www.dailyfx.com 5 EURO FORECAST, Q4 2019 DailyFX Research Team EURGBP Rate Technical Analysis: Monthly Chart (1998 to 2019) (Chart 3) EURGBP rates have been grinding sideways for nearly three years. The bullish breakout attempt higher through the descending trendlines from the 2008 and 2015 highs as well as the 2008 and 2016 highs failed; the inverted hammer in August suggests more downside is due. On the monthly timeframe, momentum is starting to shift to the downside. Monthly MACD is nearing a sell signal (albeit in bullish territory), while Slow Stochastics have already turned lower (in bullish territory as well). Until the 0.8472 to 0.9307 range breaks – until there is a clear shape of Brexit – traders may save themselves anxiety by simply staying away from EURGBP. Learn to Trade with a free demo account from IG Get your Demo Now Leveraged trading in foreign currency or off-exchange products on margin carries significant risk and may not be suitable for all investors. We advise you to carefully consider whether trading is appropriate for you based on your personal circumstances. Forex trading involves risk. Losses can exceed deposits. We recommend that you seek independent advice and ensure you fully understand the risks involved before trading. www.dailyfx.com 6 EURO FORECAST, Q4 2019 DailyFX Research Team Disclaimer DailyFX Market Opinions Any opinions, news, research, analyses, prices, or other information contained in this report is provided as general market commentary, and does not constitute investment advice. 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