EURUSD Stuck In Thin Range After Friday’s Sharp Surge – Buyers Can Enter

The Euro has been trading sideways to higher in a thin range in early European trading hours on Monday. The pair surged nearly 1% on Friday in the wake of positive signs with regards to inflation growth, and Deutsche Bank’s settlement with the U.S DOJ in a case tied to its sale of mortgage-backed securities before the sub-prime financial crisis.

In a report published last Friday, Eurostat said consumer price inflation (CPI) in the euro zone ticked up by 0.4% in September, in line with forecasts and up from the final reading of a 0.2% advance in August.

Low crude prices continued to drag down inflation. Core CPI, which excludes food, energy, alcohol, and tobacco costs, rose by a seasonally adjusted 0.8% last month, unchanged compared to the previous month’s 0.8% increase but missing expectations for a 0.9% gain.

Europe’s headline CPI has been surging month after month since February but the core reading has remained under 1% for 6 months, which is far below the European central bank’s target of 2%. The ECB is scheduled to hold its next monetary policy meeting on October 20th. In its last meeting in September, the Bank decided to leave its rates and asset-buying program unchanged with no explicit guidance on future moves being indicated or published. Therefore, no changes are expected in the upcoming meeting.

Besides inflation readings, Deutsche Bank’s case has also clouded the EURUSD markets. Markets are still waiting for more news on the German lender after news agency Agence France-Presse reported that Deutsche was nearing a $5.4 billion settlement with the DOJ, well below the originally demanded amount.

The strong bullish momentum from Friday seems to be waning today, resulting in little change in the pair even after a series of EU manufacturing activity data readings were relased earlier today. Markit’s Manufacturing PMI for the euro zone, released earlier today, picked up to 52.6 last month. The survey showed that increasing demand from both within and outside the 28-member bloc boosted factory activity which prompted managers to accelerate hiring.

All sub-indexes namely output, new orders, new export business and employment  improved, the report said. Among them, new orders jumped to 53.4 – the highest reading in the past year.

However, the upturn remained uneven among Eurozone’s members. While Germany, Austria and Netherlands recorded the highest growth rates, Spain, Italy and Ireland registered a slower pace of growth. Manufacturing in France and Greece continued to decline.

In the U.S, the Institute of Supply Management is scheduled to report on September manufacturing activity early U.S session today. The result is expected to swing back into expansion territory after unexpectedly falling below 50 in August.

Technical Analysis

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Fig: EURUSD H4 technical Chart

EURUSD has been trading sideways in a 20-pip range above the support at 1.12200. The market is generally awash with positive and upbeat sentiment. The RSI index remains above 50. The short-term MA20 is likely to converge with the long-term MA50 from below suggesting further up moves. The price action has broken through both the MA’s from below and is comfortably placed above both MA’s.

Trade suggestion

Buy Stop at 1.12435, Stop loss at 1.12200, Take profit at 1.12700

 

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