As we reported the possibility on Thursday morning, ahead of the ECB meeting, the EUR/USD has indeed staged a rally (click HERE for details). The sellers apparently started to exit their EUR/USD positions before the ECB meeting and then more of them did so when Mario Draghi hinted that further policy action is less likely because deflation risks have receded in the Eurozone. Today, the US monthly non-farm employment report come out significantly stronger than expected. Yet the dollar failed to move further higher. As we had noted previously, the March rate hike has already been priced in, thus no fresh reason for the buck to rise further ahead of the FOMC meeting next week. If the Fed signals that it will be tightening monetary policy more aggressively this year then that could spur a dollar rally. Otherwise, the dollar may correct itself before the next up leg potentially begins.
Indeed for now, the path of least resistance is to the upside for the EUR/USD. Several short term resistance levels have broken. The EUR/USD now faces potential resistance around 1.0675/80 (which was being tested at the time of writing), followed by the Fibonacci retracement levels at 1.0700 (61.8%) and 1.0755 (78.6%). But the key resistance area is further higher, between 1.0830 and 1.0875. That’s the top of the current range. It is possible that big stop orders are resting above that zone. Thus, the EUR/USD may push above this area before it turns lower from another, more significant, resistance level in the future. Two potential resistance areas above the 1.0830-75 range are at 1.0920/30 and then around 1.1000/35. The former is where the two Fibonacci extension levels converge, while the latter is the next psychological level of 1.1000.
At this stage it is difficult to say whether the EUR/USD will be able to climb to those levels. Any signs of weakness should be taken seriously, as the fundamental outlook is arguably still bearish for this pair. Indeed, should the EUR/USD break back below that 1.0460-1.0525 support area at some point, then this may pave the way for significant falls.
Source: eSignal and FOREX.com