US Dollar Draws Near Key Support; EUR/USD to Two-Month Highs
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US Dollar, EUR/USD Talking Points:
- The US Dollar is continuing to fall after last week’s NFP release helped to re-energize bears.
- The USD move has helped to catapult EUR/USD to fresh two-month-highs as the pair tests a big zone of resistance.
- This week’s economic calendar has high-impact releases from the US on Wednesday for inflation and Friday for retails sales and University of Michigan Consumer Sentiment.
It was a big week for US Dollar bears as the currency pushed down to a fresh low on the heels of a really disappointing NFP report. Stocks rallied to go along with that move of USD-weakness, leading many to point to the ‘good is bad’ theme that appears to have re-emerged in markets. But, this fails to recognize the lagging performance in tech stocks, which continue to trade on their back foot despite the S&P 500 pushing up to another fresh all-time-high.
In FX-land, trends appear to be a little more clear. The US Dollar has continued to sell-off, furthering the Q2 theme of weakness that re-emerged on the first trading day of the new quarter. The currency is fast approaching a big spot on the chart, taken from around the 90.00 psychological level, which is confluent with the 38.2% Fibonacci retracement of the 2001-2008 major move.
This same zone helped to arrest the nine-month sell-off around the New Year open, which led to that Q1 bounce. But, as looked at in the Q2 Technical Forecast for the US Dollar, that bounce appeared corrective in nature with the bigger picture trend still carrying a bearish tonality, which has played out so far in the first half of Q2.
To get the full Q2 Technical Forecast for the US Dollar, the link below can arrange that:
US Dollar Weekly Price Chart
Taking a step back to look at the bigger picture, and the importance of this current support area becomes a little more clear.
That Q1 swing-high showed up right at the underside of a trend channel that’s been going for almost a full decade. The support side of that channel offered a bounce in the USD in August/September, but sellers were able to take it out on a recurrent attempt in November. Below this current zone of support – 89.20 is the 2021 low and the current six-year-low rests around 88.25, after which there’s no nearby or recent support to work with.
US Dollar Monthly Price Chart
Chart prepared by James Stanley; USD, DXY on Tradingview
USD Weakness Helps EUR/USD To Jump to Fresh Two-Month-Highs
On the other side of that USD move, EUR/USD has been very strong. Just last week the pair was grinding around support at the 1.2000 handle, allowing for the build of a falling wedge pattern to appear. Such patterns are often followed with the aim of bullish reversals, and that’s what happened in the latter portion of last week as buyers pushed EUR/USD up to a fresh two-month-high.
The pair currently finds itself trading at the top-end of a key zone of resistance, running from 1.2134-1.2167, comprised of two different 50% markers from two separate major moves. This same zone caught the high in late-April as prices pulled back to the 1.2000 handle; but buyers look fairly persistent on this iteration as EUR/USD jumped up to this area after NFP last week, and hasn’t yet backed down.
This can keep the door open to near-term breakout potential, particularly for those that are looking for USD to drive deeper within its current support structure. Alternatively, for those looking at a short-term stall, short-term higher-low support could be sought out in EUR/USD around 1.2134 or 1.2072.
EUR/USD Four-Hour Price Chart
--- Written by James Stanley, Senior Strategist for DailyFX.com
Contact and follow James on Twitter: @JStanleyFX
DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.