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Jignesh Davda

EUR/USD Stands to Further Pare Losses

After a recent bout of weakness, EUR/USD is catching a bid from a horizontal support level at 1.1016. The pair carries a bearish near-term bias as a technical break late last week activated a double top pattern. However, we could see a bounce higher from here as price action indicates that support is being respected.

The single currency is weighed by an increase in risk appetite as of late and fluctuations in the equity and bond markets will tend to continue driving the pair.

Much of the return of risk appetite is attributed to positive developments in the trade war between the US and China. Later today, US President Trump will be giving a speech at the Economic Club of New York. There are some expectations for an update on how trade talks with China are progressing.

The speech stands to trigger volatility across the markets. Although precious metals, bonds, and equities will bear the grunt of the volatility. EUR/USD should rally if the markets are disappointed by his speech and decline if there are further positive developments.


Technical Analysis

The US dollar index (DXY) is at an important resistance level and I think this is important concerning where EUR/USD goes from here. The resistance level at 98.25 held DXY lower three times between April and May. The index breached slightly above it on Friday but has since fallen into a consolidation.

EURUSD 4-Hour Chart

From a risk to reward perspective, I think the traders will be reluctant to position in EUR/USD at current levels. The rationale being that the pair has a few layers of support. I’ve already mentioned a horizontal level at 1.1016, beyond that, there is further support from the psychological 1.1000 handle. As well, the 61.8% Fibonacci level measured from the October low to high comes in just below 1.1000.

To the upside, the 50-day moving average presents the first hurdle. This indicator held yesterday’s rally and falls at 1.1041 today. It carries a bit of a confluence with the 200 moving average on a 4-hour chart.

A break above this moving average confluence could see the pair extend its recovery toward the double top breakout point at 1.1072.

Bottom Line

  • EUR/USD is attempting to recover after a relatively sharp fall.
  • US President Trump will give a speech later today. The markets are looking for a trade update.
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