• The European single currency, the euro, benefited from a broad decline in the US dollar before last weekend.
•  Its decline is not over yet and could lead the EUR/USD rate to new lows in the coming months, according to recent credit rating downgrade forecasts from Goldman Sachs and Rabobank.
• The recent rebound gains for the EUR/USD pair stopped at the 0.9966 resistance level.
• Recovering from the support level 0.9730.

All in all, the US dollar was widely sold off on Friday in the price action that enabled the beleaguered euro to rise against most of its peers in the G20 with the only exceptions in relation to the currencies of commodity-exporting economies such as Norway, Australia, New Zealand, and Canada. Friday's bid for commodity currencies came amid further speculation about a possible change in the Chinese government's coronavirus-related policies and enabled the EUR/USD pair to rise again above the 0.99 high, although some forecasters say this latest relief is likely to be short-lived relative to the euro.

Commenting on this, Michael Cahill, currency analyst at Goldman Sachs says, “The deterioration in the terms of trade in the euro area is already weighing on the currency, and we expect there will be more room to continue, especially if the looming recession prompts the European Central Bank to take a more cautious approach. As we expect.” “As a result, we are lowering our 3-month EUR/USD forecast to 0.94,” the analyst added.

The divergence between Fed and ECB interest rates is one of the factors that have weighed heavily on the EUR lately, but high energy costs and ongoing risks of power outages are by far the most important drivers of EUR losses. Historic increases in energy prices have pushed up inflation at the same time as crippling the economy and turning the continent's trade surplus in goods and services into large deficits that have seen the market sell more euros against the dollar and other currencies this year. Overall, Goldman Sachs estimates that the single European currency, the euro, will now be valued somewhat at around 1.24 against the dollar, but notes that it has been trading at a discount from fair value estimates for some time, which is why analysts lowered expectations for the EUR/USD pair. That fair value estimate itself was lowered from around 1.45 at the start of the year and a point the EUR/USD was trading near 1.12.
 

EUR/USD Economic Outlook

The EUR/USD currency pair is being traded, affected by the announcement that the EU's composite PMI reading for October beat expectations at 47.1 with a reading of 47.3. On the other hand, the German equivalent exceeded expectations at 44.1 with a reading of 45.1, while the services PMI outperformed expectations by 44.9 with a reading of 46.5. The EU unemployment rate fell slightly to 6.6% from 6.7%, while the S&P global manufacturing PMI beat expectations at 46.6 with a reading of 46.4.
 

Technical analysis of the EUR/USD pair:

In the near term and according to the performance on the hourly chart, it appears that the EUR/USD is trading within an ascending channel formation. This indicates a significant short-term bullish momentum in market sentiment. Therefore, the bulls will target short-term profits at around 1.0028 or higher at the 1.0091 resistance. On the other hand, the bears will look to pounce on a pullback at or below 0.9887 to 0.9823 support.

In the long term and according to the performance on the daily chart, it appears that the EUR/USD is trading within the formation of an ascending channel. This indicates a significant long-term bullish bias in market sentiment. Therefore, the bulls will look to ride the current wave of gains towards 1.0196 or higher to 1.0403 resistance. On the other hand, the bears will target long-term profits at around 0.9743 or lower at the 0.9536 support.

(Click on image to enlarge)

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