After a sharp surge higher in the last few trading days of January, EUR/USD reversed lower this week to erase the gains. The pair is testing support but weakness in price action suggests more downside.
The US dollar has been dominating this week, rising against all the major currencies except for the Australian dollar. Several major currency pairs are at or near notable technical levels, including EUR/USD.
EUR/USD is found attempting to form a base near the 1.1000 handle in early trading on Thursday after posting a three consecutive day decline. The pair struggled to gain on Wednesday after an upbeat PMI report and continued to decline after positive data out of the United States.
The ADP report, which provides an insight into the US labor market ahead of the NFP report on Friday, showed an additional 291 thousand people gaining employment in January. The figure was well ahead of the analyst estimate and reflected the largest job gain since May.
Purchasing manager surveys were also positive with both the services data from Markit and non-manufacturing figures from the ISM showing the US economy growing. PMI data released throughout the week has been positive and suggests a rebound in global economic growth.
The three-day decline suggests that the rise in EUR/USD late last week was likely as a result of end of month position adjustments and reinforces a bearish view.
Over the near-term, a bounce higher can’t be ruled out as the pair is testing the same support area that held it higher last week. Especially ahead of the NFP report tomorrow.
Several of the major currency pairs are near important technical areas. The pound to dollar exchange rate is a good example. It is trading at a support level that held it higher multiple times in January. The level was also important resistance late last year.
A correlated drop below support in both EUR/USD and GBP/USD would offer a strong signal for a stronger dollar. While the next level of support in EUR/USD falls at 1.0940, the technical outlook for GBP/USD suggests the dollar has a lot more upside if it breaks lower in these two pairs.
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.