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Jignesh Davda

Dollar Regains Momentum

An advance in the greenback has weighed on the majors and has triggered a decline in EUR/USD to levels not seen since late December. The US dollar index (DXY) continues to hold within a range but has rallied toward the upper bound of it since finding a bottom Monday.

News of a missile strike on US forces by Iran sparked volatility in the markets although EUR/USD did not see as great of an impact as other assets.

Gold prices spiked higher above $1600 per ounce for the first time in seven years while equity markets came under pressure. The S&P 500 declined to levels not seen since the middle of December in after-hours trading but has since recovered. EUR/JPY declined about half a percent in the Asian session but similar to the S&P 500, has since recovered most of the losses.

Tensions between Iran and the US will likely continue influencing the markets and creating appeal for safe-haven assets. Although EUR/USD isn’t a pair specifically known to be heavily impacted by shifts in risk sentiment, the euro is often used as a funding currency during periods of risk appetite. As such, the single currency could see further downside unless risk sentiment changes.

US President Trump is expected to speak later today regarding Iran. A time has not been specified as of yet.


Technical Analysis

EUR/USD has made a second attempt at major support this week. While the currency pair is catching a bid from it, recent price action cautions of a bearish break.

EURUSD Daily Chart

Support for the pair falls near 1.1129 which marks a horizontal level that is in close proximity of two moving averages. Specifically, the 200 and 20-day moving averages have intersected near the level to create a confluence.

Further, there is a declining trendline in play that is drawn connecting the high from September 2018 to June of last year. The pair broke above it in the last week of December and is currently retesting it.

This is a fairly major area for EUR/USD, and the reaction from here will tend to set the tone for a near-term directional bias.

Yesterday’s decline resulted in a bearish engulfing candle which tilts the risk to the downside. As well, the pair is testing this support for a second time now which signals a general lack of buying pressure.

A breakdown below support is likely to see the pair make its way toward the 1.1100 handle where a rising trendline comes into play. While above support, resistance for the session ahead is seen at 1.1170.

Bottom Line

  • EUR/USD has extended losses and is once again attacking a major support area near 1.1129.
  • A break below support targets a move toward 1.1100.
  • The dollar has been rallying in the early week, however, DXY remains within a broader range that has been playing out since the start of the month.
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