Powell was evasive and Lagarde leaned hawkish, and I think neither of those items were surprising to anyone following along. But what probably did surprise more than that was the overnight intervention in the Japanese Yen, which has already been confirmed by Nikkei after strong warnings were given by Japanese officials ahead of the move.
As I’ve been covering in webinars of late, such a move in a pair like USD/JPY could have effects away from just that market, as Dollar selling could show in areas like EUR/USD and GBP/USD, scenarios resembling July of 2024 or January and February of earlier this year. In EUR/USD, that came at an opportune time as the pair had just touched the very top of the 1.1628-1.1655 support zone before putting in a rally, and running up to a key swing level at 1.1719.
Along the way and from the pullback over the past two weeks the pair has set up a falling wedge formation, which is often approached with aim of bullish reversal. First, buyers need to make a move to prod above resistance, in essence, continuing with short-term higher-highs and lows. At this point, the same 1.1719 level sets an important line in the sand, as buyers making a run above that level show the willingness that could lead to bullish continuation.
As far as levels are concerned, given the reversal off of 1.1655 it’s still too early to say that a low is in as we don’t yet have evidence of a higher-low. I think that the 1.1667 level stands out as important for that, so a higher-low there, with buyers defending 1.1655, could present that case. If we do get below 1.1655, I wouldn’t necessarily consider all bullish hope lost as I’m tracking that zone down to 1.1628. If we get a closed candlestick body on the daily chart through that level, that’s when I think the bullish thesis should come into question.
Above current price action, the zone of prior support-turned-resistance at 1.1742-1.1766 stands out as important. We saw a lower-high print there earlier in the week and if buyers can force a push above 1.1719, that would be the next upside target for bulls to encroach upon. And then above that, it’s the prior swing at 1.1833 that stands out as next resistance overhead.
EUR/USD Four-Hour Price Chart
Chart prepared by James Stanley; data derived from Tradingview
--- written by James Stanley, Senior Market Analyst, Global Macro
