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Jignesh Davda

EUR/USD Shows Resilience

Although resistance is in play for EUR/USD, the pair is showing some resilience here as it is not backing down. The pair has been consolidating around the 1.1200 handle for two days as short-term dips have been bought.

The week started with a lot of volatility as trade war headlines dominated but this volatility has since eased. Equities have recovered some losses, the dollar has fallen into a range, and even bonds have now started to pull back a bit.

A relatively quiet economic calendar in the session ahead means that volatility can remain like this, unless there are some headlines to move the markets.

Fed members Evans offered his latest view on monetary policy yesterday and was dovish. He argued that although the economy is performing relatively well, subdued inflation levels alone make the case for lower rates. Add to that risks from an ongoing trade war and further easing appears inevitable.


Technical Analysis

Yesterday’s report highlighted the confluence of resistance that has capped the EUR/USD rally here. To recap, there are several moving averages in play here.

EURUSD 4-Hour Chart

On a 4-hour chart, the 200 moving averages has held recent advances. On a daily chart, the 50 and 100-day moving averages have converged around 1.1230 to offer a strong confluence. In addition to the moving averages, there is also a declining trendline that originates from the late June high.

So far, EUR/USD has posted two consecutive daily doji’s which is indicative of exhaustion. However, as mentioned, the pair is showing some resilience here. The fact that it has not sold off despite the somewhat overwhelming technical evidence that it should shows strength.

EURUSD Daily Chart

For that reason, I would not rule out another push higher here, even if it is just to trigger some stops from the early week high. If this were to happen, I would be looking out for the 61.8% Fibonacci retracement measured from the late June high. It comes in at 1.1265. Beyond that, I see a horizontal level at 1.1276.

To the downside, I consider 1.1188 to be major support here. There have been some minor breaches below the level, but seems to be containing the recent range well.

Bottom Line

  • A consolidation has taken place in the past few days as the market reaction to the latest developments in the trade war have started to fade.
  • The economic calendar for the session is light, low volatility is likely to prevail.
  • There is major overhead resistance in play here, but EUR/USD shows strength as there hasn’t been a show of strong selling in the past two days.
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