EUR/USD: How should one trade the pair this week? (UOB)

The EUR/USD pair once again hit new annual lows yesterday, after having already dropped sharply last week.

The EUR/USD pair had sent several key technical signals last week, including falling below its moving averages of 100 and 200 hours, breaking below the previous annual low, breaking below the psychological threshold of 1.10 and crossing the moving average 100 hours below the moving average of 200 hours.

Hourly EUR/USD chart

So sellers are clearly dominating the beginning of this week, and this is the opinion expressed by UOB Bank in a note published yesterday:

UOB Bank forecasts a further decline of the pair to 1.0930

According to UOB, it is not excluded that the EUR/USD pair may drop further this week.

In the short term, "while we expected the euro to fall last week, we were of the opinion that "1.1025 is probably out of reach". The resulting weakness far exceeded our expectations, as the euro not only crossed the 1.1025 mark downward, but also broke through major support at 1.1000. The euro is now more likely to consolidate its losses and trade laterally, which should be in the range of 1.0960/1.1025″

Looking ahead to 1-3 weeks, the bank notes that "the euro could extend its weakness to the next support level at 1.0930. However, excessive overselling conditions in the short term could lead to a few days of consolidation first. The initial resistance is at 1.1025 but only a crossing above 1.1060 ('key resistance') would indicate that the current weakness of the euro has stabilised".

This week's key events

ISM US manufacturing

We expect the ISM index to decline slightly to 51 for the month of August, which continues to reflect the gloomy outlook for the US manufacturing sector.

NFP Report

We also expect job creation to fall to 135k in August, reflecting a moderation in manufacturing employment and a slowdown in job creation in the service sector.

The unemployment rate is expected to remain stable at 3.6%, while wage growth is expected to fall to 2.9% year-on-year.

Speeches by Fed members

A large number of Fed officials, including the Fed's Powell, Williams of the New York Fed, and Evans and Rosengren will take to the stage this week.

We do not expect President Powell or Williams to deviate significantly from the Jackson Hole's speeches on maintaining the current expansion, while Evans and Rosengren will likely represent the Dovish and Hawkish camps, respectively.