The US dollar is paring some of its recent gains to start the week as equity markets in Asia and Europe are coming off their recent highs.
In Friday’s daily forecast I made the case that the euro might be more susceptible to correlations with risk assets considering the recent development in the US-China trade war. As a funding currency, it tends to come under pressure when there is a broad-based demand for risk.
For that reason, it does not come as a surprise that the pair is bouncing a bit higher in the early day as most of the equity markets are trading lower while precious metals and bonds are getting a lift.
Nevertheless, the EUR/USD technical outlook suggests the pair is a sell on rallies after a technical break came into fruition last week. EUR/USD signaled a double top pattern after making a sustained break below support at 1.1072 on Thursday.
The markets will tend to remain focused on headlines related to the trade war as other drivers such as Brexit sentiment fades. Further, the economic calendar is quite light in the early week with a bulk of the market moving releases falling in the second half of the week.
The double top pattern in EUR/USD points to a measured move target of 1.0970. Considering the pattern, I suspect the pair will be faced with sellers and that the current recovery might not gain traction.
A potential area where sellers might look to step in during today’s session is at the 200 moving average on a 4-hour chart. It currently falls around 1.1050. Above that, the break out point of 1.1072 remains a critical resistance area.
The pair appears to be bouncing from a horizontal level at 1.1016 which is a minor support/resistance level that has influence price action since September.
The daily close will be important as the 50-day moving average comes into play. It currently falls at 1.1040. A daily close below it would be a strong show of weakness.
Jignesh has 8 years of expirience in the markets, he provides his analysis as well as trade suggestions to money managers and often consults banks and veteran traders on his view of the market.