Could EUR/USD head to 1.10 despite Fed hike?

Today, the US monthly non-farm employment report come out significantly stronger than expected. Yet the dollar failed to move further higher.

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

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 or GAIN Capital refer to GAIN Capital Holdings Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.

Open an Account