EUR/USD: Deeper setback within hourly up-cycle eyed

Fundamentals: In the last 24h, the market had to contend by a series of confusing reports about the prospects of a US-China trade deal. We also saw a strong US NFP report, which fortifies the expectations for another Fed rate hike by December this year. Furthermore, at the open of the markets on Monday, participants are trying to come to terms over the latest reports that seem to suggest a Brexit deal is closer than what the market may have thought. Last but certainly not least, the market is not in preparation mode ahead of the US midterm election results, which is by far the most imminent risk event.

Cycles & Levels: From a weekly perspective, we ended up with an indecision candle. A potential double bottom and the establishment of a newly found range in the weekly hinges on the ability of price to recover the mid-point of the 1.13-1.18 delimitations at 1.1550. On the daily, the price has rejected a key resistance area at 1.1430 as part of a developing down-cycle and with a descending trendline still aiding the bearish outlook from a cycles perspective. On the hourly,we have the validation of a new up-cycle, despite the latest impulsive counter-cyclical order flow into the 50 fib retracement of the last cycle high is worrisome. The sharpness of rejection suggests a deeper setback. Sellers should prevent auctions from finding acceptance above the 1.1420-30 level if they are to challenge lower level in the coming 24h of price action.

Correlations & Volumes: In terms of volumes, the sequence of increasing downside tick activity coupled with Friday’s POC trapped above the current price at 1.1420 suggests the risk of a bearish trend resumption are on the rise. It’s a mixed bag when analyzing correlations, as the Italian premium continues to be reduced (EUR positive), while the 5-year German vs US yield spread just made new marginal trend lows (EUR negative).In the very short-term (next 48h), until we get the results of the US mid-term election, the risk is that 1.1420 caps the upside, making a rotation back towards 1.1350.