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Jignesh Davda

EUR/USD Retests Breakout Point

There was a fairly significant technical break in EUR/USD yesterday as the pair broke above an important resistance confluence. Momentum has faded a bit since then, although the pair continues to offer a bullish signal while above this area.

A positive development in the US-China trade war on Thursday triggered a rally in risk although it did not have a very significant impact on the dollar. The US dollar index (DXY) fell to a two-week low yesterday and has since fallen into a narrow range. Meanwhile, the S&P 500 gained 1% on Thursday and is seeing a strong bid in pre-market trading today.

Investor optimism was lifted after comments from US President Trump indicated that the world’s two largest economies were moving closer to a deal. Talks will resume today and we could see further volatility in the markets. The economic calendar is quite light today so the markets will tend to be entirely focused on the trade war.

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Technical Analysis

Yesterday’s bullish break was quite significant as several technical barriers were breached. First, the 1.1000 level itself is quite important considering its psychological properties. Further, the 20-day moving average falls near the level to create a confluence. Lastly, the upper bound of a trend channel is also within close proximity of the horizontal level and moving average. The channel had held EUR/USD lower since late June.

EURUSD 4-Hour Chart

The pair topped around 1.1030 yesterday and has since declined to retest the breakout area that buyers have been defending. If we manage to get back below it, especially on a daily close basis, it would negate the breakout.

On the other hand, EUR/USD could be signaling a bullish reversal considering yesterday’s technical development. For this reason, how the pair trades today, and closes for the week, will be important for the near to medium-term outlook.

Bottom Line

  • After the bullish break yesterday, EUR/USD bulls are defending the breakout area on a dip.
  • Trade negotiations will continue and news on developments stand to drive volatility to the pair.
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