FX.co ★ EUR/USD

EUR/USD is trading in the green at 1.1245 in early Thursday European session hours. However, any upside gains may be capped due to worries about France's fiscal situation. ECB member Fabio Panetta is set to speak later today on Thursday. The 10-year French borrowing rates rose above the 5% level for the first time in 24 years on Wednesday, as a result of weekend protests in France, sparked partly by budget cuts in public spending. "The euro cannot fall apart—and it cannot gain," said President of Spectra Markets Brent Donnelly. "It's a stalemate situation where the negative overhang almost perfectly matches market positioning," Donnelly added. The ECB will keep its benchmark interest rate steady at 2.5% next week, although any hike is virtually certain by the end of the year, Reuters reports. On the other side of the Atlantic Ocean, there is a slim possibility of a rate hike by the Federal Reserve (Fed) next week, but the next rate increase will take place in December, the CME FedWatch Tool reports. The analysts at Societe Generale stress that in the case of EUR/USD, it is "strange that high prices in natural gas and nervousness about the bonds have not prompted another leg down, something that might have happened before October." The reason is that "correlations have gone away in the last two weeks or so," and the pair no longer acts the same way it usually did in response to energy prices and bond market movements. "It implies that all the bad news is already priced in or that investors are not ready to engage in new trades and trade within the ranges," say the experts at the bank. Fed Chairman Warsh provided a relatively constructive but not particularly strong speech, as indicated by the score of 5.6 in terms of the FXS Speechtracker compared to an average of 6.1, which shows that the tone is somewhat softer than the one established previously. The statement that they have been "over-scarred from the Global Financial Crisis" clearly shows a risk-averse mentality. Yet, Warsh acknowledges the growth and investment boom of a structural kind and avoids pre-committing on the October and December meetings, thereby leaving himself with some flexibility. The FXS Fed Sentiment Index was unchanged at 0.00 points, with the current value of 127.51 indicating that the policy tone remains clearly hawkish even if we see a somewhat softer tone on the part of the FXS Speechtracker. A high level of the FXS Fed Sentiment Index and Warsh's lack of pre-judgment regarding the October and December meetings show that markets should price a restrictive tone but not see any further hawkish moves for the Dollar just yet.

In the daily timeframe, EUR/USD remains below the 100-day Moving Average, as well as slightly below the 20-day Bollinger simple moving average. In spite of a slight stabilization of the price, a short-term negative bias prevails. The RSI(14) of 42 is still trading below the 50 mark, meaning that negative momentum is decreasing but not reversing, limiting the upside due to overhead moving average resistance. Regarding the upside targets, the first level of resistance is seen at the October 6 high at 1.1276, heading towards the upper boundary of the Bollinger band at 1.1372. The next key resistance is seen at the 100-day Moving Average of 1.1455, which will have to be taken out to reduce the broader bearish pressure. As for the support targets, the first level of support is seen at the October 19 low of 1.1185, followed by the lower boundary of the Bollinger band at 1.1120. The important level of contention is seen at 1.1000.