EUR/USD Forecast: Bounce, then fresh fall? How the last day of Q3 could unfold

EUR/USD has been licking its wounds at around 1.16 after Wednesday’s plunge.
The Fed’s upcoming tapering and several fear factors boost the dollar.
End-of-quarter flows could benefit push the pair higher.
Thursday’s four-hour chart is showing oversold conditions.
How low can the euro go? The common currency is at the mercy of King Dollar, which seems benevolent early on Thursday – but that could change quickly.

The greenback is mostly benefiting from the Federal Reserve’s upcoming announcement about tapering its purchase scheme. The prospects of the Fed buying fewer bonds triggered a sale of US debt, resuling in higher yields. The increase of 10-year Treasuries to around 1.50% makes the dollar more attractive.

Earlier in the week, the greenback also rode higher on a “risk-off” mood. However, investors ignored concerns about China’s power outages and the upcoming debt ceiling deadline, resulting in stock market gains. The dollar still advanced. The greenback has taken a breather on Thursday morning, edging lower against the euro and other currencies. One reason is a report that the US Congress is set to approve government funding through December 3, averting an imminent shutdown.

This agreement is good news, but there are no developments on the debt ceiling – which may result in the US missing debt payments in mid-October. Democratic Party infighting on the expenditure package is in full force as well.

It is also essential to note that EUR/USD’s recovery is minimal – another typical “dead-cat bounce.” Where next?

Germany releases its preliminary Consumer Price Index (CPI) figures for September, and there is good reason to expect elevated inflation. Spain surprised by reporting an increase of 4% YoY, driven by soaring energy costs. A high German CPI print could push the euro higher.

Fed Chair Jerome Powell is set to testify before a House Committee later in the day, making it his third public appearance in an as many days. Speaking alongside European Central Bank President Christine Lagarde and others, Powell reiterated his position that inflationary pressures should subside. Up on Capitol Hill, in a less friendly environment, he may face harsher scrutiny and perhaps express more worries about price rises. That would keep the dollar bid.

Final US Gross Domestic Product figures for the second quarter are set to confirm the 6.6% annualized level previously reported. Jobless claims are set to decline from last week’s 351,000 print. These publications are unlikely to derail the Fed’s intention to withdraw support.

Overall, fundamentals remains supportive of the dollar. However, Thursday is the last day of the month and the quarter, which means money managers will be adjusting their portfolios. After gaining substnatial ground, the greenback could suffer some selling pressure, especially around 15:00 GMT., the time of the London fix.

However, that would probably be temporary. The fundmantal picture remains bearish for euro/dollar – the pair could advance at first but then return down.

EUR/USD Technical Analysis
Euro/dollar is oversold according to the Relative Strength Index (RSI) on the four-hour chart, which is significnatly below 30. That indicates a bounce. Other indicators such as Simple Moving Averages (SMAs) are bearish

Immediate support awaits at 1.1590, which was Wednesday’s trough, and the lowest since November 2020. It is followed by 1.1550 and 1.15, levels recorded a year ago.

Some resistance is at the daily high of 1.1610, followed by 1.11660, which cushioned EUR/USD before the collapse. The next lines to watch are 1.1680 and 1.17.