EUR/USD creates double bottom and gets carried away by Brexit hopes

  • The EUR/USD kicks off November with a significant recovery.
  • Progress on Brexit and calmer markets support the pair.
  • The technical picture is looking balanced for now.

The EUR/USD is trading closer to 1.1400 as a new month begins. The primary driver is Brexit. Brexit Secretary Dominic Raab expressed hope to reach a deal by November 21st. The letter was written in mid-October but published only on Wednesday. More importantly, the UK and the EU reached an agreement about a post-Brexit financial services agreement, according to various report.

The combination pushed the GBP/USD some 200 pips trough to peak, and the EUR/USD also managed to recover. The pair was pressured lower on Wednesday and nearly reached a new yearly low. The trough was 1.1302, the lowest since mid-August. Short-covering and end-of-month flows may have been in play.

Euro-zone inflation came out at 2.2% YoY on the headline and 1.1% on the core in the preliminary read for October, as expected. However, the common currency continued suffering from Tuesday’s publication of weak GDP data. The 19-country currency bloc grew by only 0.2% in Q3, half the level in Q2. Debt-stricken Italy stagnated, and the news exacerbated the tensions with the European Commission over the budget.

In the US, the ADP Non-Farm Payrolls came out at 227K, above estimates and raised expectations for Friday’s official NFP.

Many European countries are celebrating All Saints Day, so liquidity is slightly lighter than usual.

In the US, weekly jobless claims, quarterly labor unit costs, and productivity will be of some interest. The central indicator of the day is the ISM Manufacturing PMI for October which is projected to slip from the highs of 59.8 points seen in September. The release serves as a hint towards Friday’s Non-Farm Payrolls.

EUR/USD Technical Analysis

The EUR/USD has emerged from the lows, and the Relative Strength Index on the four-hour chart escaped the 30 level which indicates oversold conditions. The pair is approaching the 50 Simple Moving Average which is just under 1.1400 at the time of writing. A break above the line will serve as a bullish sign. On the other hand, Momentum is still in negative territory.

Resistance awaits at 1.1415 that capped the EUR/USD early in the week. Close by, 1.1430 was a double-bottom during October. The next caps are 1.1495 and 1.1550 which were both swing highs when the pair trended lower in October.

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