Citi: EUR/USD Exchange Rate's Downtrend is Back

The EURUSD conversion will continue to trade with a downside bias as we approach December with the long-term dollar bull-run resuming.

The move lower will be tested on the 6th of November when employment and wage data from the US is released.

The figures could well cement a December interest rate rise which will add extra downside pressure on the EUR to USD conversion.

Regardless of the outcome, Citibank suggest what we are witnessing is the potential commencement of the long-expected long-term drop in the euro exchange rate complex.

Having traded above the 1.10 level against the US dollar for much of 2015 those bears who had prepared themselves for a run to parity were bitterly left disappointed by the dollar’s inability to press the exchange rate lower.

“The drop in EUR likely underway,” say Citibank who are targeting the 1.0850–80 area initially.

Resistance to any euro recovery lies at 1.1073.

“Support comes in at 1.0987, and 1.0897. For now, a continuation of  range trading but the downside bias to firm as we approach the December ECB meeting,” say Citi.

The broader US dollar recovery (on the back of Fed rate rises) has seen Citibank make the US dollar index their 'chart of the day' on the 3rd of November.

The forecast is for the dollar to advance beyond the initial 2015 highs:

The weekly chart shows a double bottom within a triangle with the neckline at 98.33 which is the next level to watch according to strategists.

“A weekly close above there would confirm the pattern and argue for a rally to 103.53.  Interestingly, this double bottom setup is similar to what we saw in July 2014 when we posted a bullish monthly,” say Citi.

US Employment Data Could Undermine the Dollar

With the dollar looking to get back into the driving seat it is worth pointing out that there is no shortage of risk ahead.

The biggest challenge for the dollar bulls will be the release of employment data on Friday.

“Expectations are higher for a stronger employment number out of the US and the broader USD is likely to follow the US bond markets. Both have tested and held key levels and are now in holding patterns. US 2-year yields under the .75-80% region and EURUSD over the 1.09/1.08 key support zone,” say Lloyds Bank.

Any disappointment in the data will see this premium taken out of the dollar very quickly.

Economists are predicting a reading of 180K up from 142K last month.

We believe that the disappointment would need to be quite sever to undermine the theme of a December lift-off at the Fed. Only then would we likely see the USD rally derailed.