Soon after sprinting to its highest level in over 30 months- to 1.2092 during the third quarter of 2017, euro bears were back in action after the European Central Bank was more cautious than anticipated, at its September policy meeting.

As we head into the final trading quarter of 2017, the Euro/Dollar could transform into a battleground for both buyers and sellers, as the forces driving the pair are fluid and unpredictable.

Political Instability in Europe

The renewed risk of political instability in Europe has already bruised buying sentiment towards the Euro, weakening the currency against most of its counterparts.

With increasing political uncertainty following the German Federal Elections that led to a surge of the far right, the currency continues to be under noticeable pressure.

Catalonia’s referendum to vote for independence on October 1, has compounded the euro’s woes, as concerns heighten over the rise of other separatist movements in Europe, threatening the unity of the European Union.

Euro could have on growth and inflation

Although Europe’s encouraging macro fundamentals may limit the damage created by political risks, inflation in Europe still remains below the golden 2% target.

The European Central Bank has expressed concerns over the dis-inflationary impact that a resurgent Euro has had, and this could delay tapering of QE, in the medium to long term.

While Mario Draghi has avoided using verbal intervention to pull the Euro lower, he has, on repeated occasions, warned about the possible impact a strengthening Euro could have on growth and inflation.

So although the ECB is expected to eventually taper QE, it becomes a question of how and when.

Tax Reforms & Interest Rate in US

Meanwhile in the States, the dollar experienced a remarkable change of fortune as renewed optimism over Trump’s tax reforms and heightened expectations of higher US interest rates.

Although low inflation in the US still remains a sore point, the Federal Reserve seems determined to raise US interest rates in December, as prolonged weakness of low rates is a risk to financial stability.

Investors should keep in mind that the growing uncertainty over the Fed Chair’s future, has the ability to pressure the resurgent dollar. If Trump selects a dovish Chair to replace Janet Yellen, it could weigh on the prospects of higher US interest rates in 2018.

Technical Prospect on EURUSD

With regards to the technicals, the EURUSD has found itself in a wide range on the weekly timeframe, with support at 1.1680 and resistance found at 1.2000.

Bulls and bears are currently engaged in a fierce tug of war as the fundamental drivers clash and this could result in the EURUSD remaining in this range until the next major catalyst.

Technical traders will be closely observing how prices react to the 1.1850 level – a pivotal point on the daily timeframe. A breakout above this level may open a path towards 1.1920.

In an alternative scenario, sustained weakness below 1.1850 could encourage a decline towards 1.1730.

Market players will be also monitoring how the pair behaves around to the 1.1680 support with a weekly close opening a path towards 1.1600 and 1.1500, respectively.

Although the monthly timeframe is starting to look bullish and points to further upside, bulls need to conquer 1.2000 for the pair to experience a further appreciation towards 1.2250 and 1.2480.