Piece written by Alexa Smith, Trive Financial Market Analyst 

The Middle East conflict had a significant impact on the EURUSD currency pair, which shied away after three consecutive days of gains. The turmoil drove up oil prices and bolstered demand for safe-haven government bonds, simultaneously exerting downward pressure on global equities. This situation unfolded in the aftermath of a strong US jobs report for September, heightening anticipation for upcoming inflation data.  

Amidst this backdrop, sovereign bonds found relief from a recent sell-off, with 10-year Treasury futures posting notable gains. These developments occurred against the backdrop of global financial markets already grappling with rising bond yields, driven by various factors such as asset managers shifting away from long government bond positions, rising oil prices, a surge in government and corporate bond supply, and a growing acceptance of prolonged high-interest rates set by central banks, with the strong US jobs report further reinforcing expectations of elevated interest rates for an extended period. Looking ahead, market participants are closely monitoring the release of September’s consumer price data, which could challenge expectations regarding the Federal Reserve’s approach to interest rate hikes.  

Technical 

A descending channel pattern is evident on the 1D Chart as the Euro continues to endure bearish sentiment, bolstered by an influx towards the safe-haven US Dollar. Since the 50-day moving average has diverged from the 100-day moving average, the EURUSD currency pair could succumb to a pullback towards the 1.04637 support. In this case, a drop in buying volume could support a breakdown towards the channel support, which could mark the continuation of a broader downtrend. 

However, cooling inflation in the US could see the 1.04637 hold, which could bolster the currency pair towards the 1.05837 resistance. In this case, the 1.06454 resistance at the 23.60% Fibonacci Retracement could mark a pivot point for a reversal as this level intersects with the channel resistance.  

Summary 

The EURUSD currency pair retraced after recording three consecutive sessions of gains. With sentiment turning towards safe-haven assets, the currency pair may be tempted to retest the 1.04637 support, which could pave the way for the continuation of the broader downtrend. However, cooling inflation in the US could promote a pullback towards the 1.05837 resistance. 

Sources: TradingView, Reuters