EUR/USD Bear Flag in Focus Amid Growing Risk for Euro-Zone Recession

Talking Points:

- EUR/USD Bear Flag Remains in Play Even as Germany Cuts 2014,201 GDP Forecast.

- GBP/USD Bearish RSI Momentum Continues to Take Shape as U.K. CPI Disappoints.

- USDOLLAR to Face More Fed Rhetoric; Retail Sales & Beige Book to Highlight Growth Concerns?

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EUR/USD

• Looks as though a bearish flag pattern is taking shape in EUR/USD as it carves a string of higher-lows even as Germany cuts its 2014 growth forecast to 1.2% from an initial forecast of 1.8%.
• Will look for a continuation of the long-term bearish trend once the Relative Strength Index (RSI) breaks the near-term upward momentum.
• Despite the recent volatility in the DailyFX Speculative Sentiment Index (SSI) retail crowed remains net-long EUR/USD as the ratio currently stands at +1.14.

GBP/USD

• GBP/USD slips to a fresh monthly low of 1.5903 as U.K. Consumer Price Index (CPI) narrows to 1.2% from 1.5% in August to mark the slowest pace of growth since September 2009.
• Even though U.K. Jobless Claims are projected to decline another 35.0K in September, Average Weekly Earnings may have a greater impact on the British Pound amid the weakening outlook for inflation.
• Despite the lower-low in price, seeing the RSI retains the bullish momentum carried over from September; need the oscillator to dip back into oversold territory to favor a further decline in GBP/USD.

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USDOLLAR(Ticker: USDollar):

Chart - Created Using FXCM Marketscope 2.0

• Dow Jones-FXCM U.S. Dollar Index remains at risk for a larger correction should we continued to see failed attempts to close above the 11,050 pivot.
• U.S. Advance Retail Sales expected to show a 0.2% decline following a 0.6% rise in August; will Fed’s Beige Book highlight a weakening outlook for growth?
• 10,869 (78.6% retracement) to 10,887 (61.8% retracement) remains on our radar, followed by 10, 752 (38.2% expansion) to 10,759 (61.8% retracement).

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--- Written by David Song, Currency Analyst

To contact David, e-mail dsong@dailyfx.com. Follow me on Twitter at @DavidJSong.

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