EUR/USD Daily Forecast – Euro Dips to Support as the Dollar BouncesThe rally in EUR/USD appears to have stalled out a bit as the US dollar is bouncing from an important technical support area.
US Dollar Index (DXY) Held Higher By 50-Week MA
The dollar is catching a bit of a bid in the early week which has taken the steam out of the EUR/USD rally. Aside from the commodity currency block, the greenback is showing broad-based strength against the major currencies in the week thus far.
The technical indicator holding DXY higher is the 50-week moving average. This moving average has held the index higher for about three weeks now. The last time DXY traded below it on a sustained basis was nearly one and a half years ago.
From a slightly broader perspective, the dollar is under pressure. DXY closed the month of October for a loss of about 2%. The index printed a bearish engulfing candle in the process.
For this reason I think rallies in the dollar will be met with sellers. At the same time, I think it’s important to closely monitor developments in EUR/USD as the pair is showing a potential minor double top pattern.
We might see some volatility later in the session as PMI figures will be released from the United States. Earlier in the day, Spanish unemployment was reported to rise with 97.9 thousand additional unemployed people in October. Analysts had been looking for a figure of 62 thousand.
There are conflicting signals from EUR/USD. On the one hand, the pair is testing some important support. This support comes from a horizontal level at 1.1129. Further, the pair is also retesting a broken trendline that originates from the October high and the 100-day moving average is in play.
On the other hand, the pair posted a double top after two rejections from 1.1175, and has since broken lower. The measured objective for this pattern falls at 1.1086.
I think what we are seeing here is some reluctance from buyers considering that there is fairly significant overhead resistance nearby. This resistance reflects the 200-day moving average which is currently residing just below the 1.1200 level.
I expect the pair will continue to be bought on dips, but because of the potential double top pattern, I would not rule out a bit more downside in the near-term.
- EUR/USD has come under pressure as the dollar attempts to recover.
- US PMI data scheduled for release later in the day stands to trigger some volatility.