After briefly dipping lower on Tuesday below the 1.10 handle, EUR/USD has recovered and made another attempt at the 50 DMA, boosted by optimism over an orderly Brexit.
Price action in the FX markets on Tuesday provided a glimpse of which currencies are likely to see a reaction based on how things progress with reaching a Brexit deal.
Since last week, the British pound has been firmly bid and was last seen trading near highs not seen since June against the dollar. But yesterday’s surge higher in GBP/USD accompanied a bullish reaction in EUR/USD which we’ve not seen before.
EUR/USD had declined below the 1.1000 handle and then rallied nearly 50 pips in 30 minutes on Brexit news. This suggests if Brexit talks are favorable, EUR/USD is likely to continue its recent upward trend.
So far the 50-day moving average has been holding the pair lower on a daily close basis. But the indicator is not likely to be much of a hurdle on positive Brexit news. We are likely to get some market-moving news later today as Brexit negotiations will stop before the EU summit which starts tomorrow.
The consumer price index in the Euro zone was reported to rise at the slowest pace in nearly three years. Meanwhile, core CPI, which strips away volatile items such as food, energy, alcohol, and tobacco, remained unchanged at 1% in the year to September. The exchange rate had a muted reaction to the report.
Two items have been capping rallies in EUR/USD. A horizontal level at 1.1059 and the 50-day moving average.
If we get some further positive Brexit news, I’d expect this area to be breached, putting in focus resistance at 1.1129. This is a level that was major support April and in May.
In the absence of news, I expect that sellers will try and drive the pair lower once again. Although we may see buyers step in ahead of yesterdays low just below 1.1000, this continues to be an important area for the pair.
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.