EUR/USD stuck between rock and a hard place ahead of ECB
Fawad Razaqzada September 7, 2016 1:52 PM
The EUR/USD is stuck between a rock and a hard place. Despite Tuesday’s poor US ISM services PMI and last week’s weaker-than-expected jobs report, the dollar has held its own relatively well against the euro, ‘only’ falling around 145 pips since last Wednesday. Today it has recouped some of those losses with the EUR/USD easing back slightly. Admittedly, the only piece of US macro data released earlier has been positive as job openings hit a record high in July. But this is unlikely to have been a major contributor behind the dollar’s comeback as hiring was steady in July and slowed down in August, as the non-farm payrolls report suggested on Friday. The euro meanwhile has generally weakened against other major currencies over the past few days, which explains why the EUR/USD has underperformed compared to, say, the NZD/USD.
Understandably, not many people are willing to hold bold positions in the euro ahead of Thursday’s policy decision from the ECB and Mario Draghi’s press conference. Although virtually no one is expecting to see any changes in ECB’s policy stance at this particular meeting, there is a possibility that the ECB head may signal its intention to further loosen its policy in the coming months. In addition to the ECB uncertainty, there is no significant US data released until late next week with retail sales coming in on Thursday and CPI a day later on Friday. Thus, position squaring is at least partially to blame behind the EUR/USD’s slight retreat today.
Technical outlook: EUR/USD
From a technical perspective, the EUR/USD is obviously stuck inside a long-term consolidation pattern. Within this consolidation there has been some interesting and tradable price patterns that have emerged in recent times. Most recently, the retest of the broken bullish trend line caused the Fibre to drop to a key support area around 1.1130 where the 50 and 200 day moving averages converge. This level has offered good support and with the moving averages both pointing higher again, one could argue that the trend is beginning to look bullish for the EUR/USD.
However, price will need to stage a decisive breakout above the 1.15 area to confirm the bullish trend. Until and unless that happens, one would need to proceed with extra caution, particular around key resistance levels. One such level, around 1.1245-70, has been tested several times on an intra-day basis over the past day and a half. As can be seen from the chart, this area was previously support and ties in with the 61.8% Fibonacci retracement level of the most recent downswing.
If resistance continues to hold here, then there is the potential for the Fibre to drop back to the 1.1130 area again. The next level of support below 1.1130 is around 1.1045, which corresponds with a prior low and the second bullish trend line. Meanwhile if the aforementioned resistance range in the 1.1245-70 area finally gives way, then there is nothing significant top hold price down until the prior swing high at 1.1365 and then the area between 1.1425-1.1500. So there you have it: some key levels to watch ahead and in the aftermath of the ECB day.
Source: eSignal and FOREX.com.
Disclaimer: The information on this web site is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement. The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.
Futures, Options on Futures, Foreign Exchange and other leveraged products involves significant risk of loss and is not suitable for all investors. Losses can exceed your deposits. Increasing leverage increases risk. Spot Gold and Silver contracts are not subject to regulation under the U.S. Commodity Exchange Act. Contracts for Difference (CFDs) are not available for US residents. Before deciding to trade forex and commodity futures, you should carefully consider your financial objectives, level of experience and risk appetite. Any opinions, news, research, analyses, prices or other information contained herein is intended as general information about the subject matter covered and is provided with the understanding that we do not provide any investment, legal, or tax advice. You should consult with appropriate counsel or other advisors on all investment, legal, or tax matters. References to Forex.com or GAIN Capital refer to GAIN Capital Holdings Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.