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EUR/USD Rebound Unravels as ECB Buys Time; November-Low on the Radar

EUR/USD Rebound Unravels as ECB Buys Time; November-Low on the Radar

David Song, Strategist

Talking Points:

- AUD/USD Extends Bullish Sequence Following Upbeat Australia Employment Report.

- EUR/USD Rebound Unravels as ECB Buys Time; November-Low on the Radar.

DailyFX TableAUD/USD

AUD/USD climbs to a fresh monthly-high (0.7675) following a 61.6K expansion in Australia Employment, and the pair may stage a larger recovery ahead of the weekend as it extends the series of higher highs & lows from earlier this week.

Keep in mind, the broader outlook for AUD/USD remains tilted to the downside as the pair continues to track the downward trending channel from September, and the exchange rate may continue to exhibit a bearish behavior in 2018 as the Reserve Bank of Australia (RBA) remains in no rush to lift the cash rate off of the record-low. Indeed, the ongoing improvement in the labor market may encourage the RBA to adopt a hawkish tone as Governor Philip Lowe warns that ‘it is more likely that the next move in interest rates will be up, rather than down, but the central bank may merely attempt to buy more time at its next meeting on February 6 as ‘household incomes are growing slowly and debt levels are high.

Nevertheless, the near-term outlook for AUD/USD has perked up as the pair finally rebounds off of channel support, and the topside targets remain on the radar going into the week ahead especially as the Relative Strength Index (RSI) snaps the bearish formation carried over from the summer months. Want to learn more about popular trading indicators and tools such as the RSI? Download and review the FREE DailyFX Advanced trading guides!

AUD/USD Daily Chart

AUD/USD Daily Chart
  • AUD/USD carves a fresh bullish sequence following the failed attempt to break/close below the 0.7460 (23.6% retracement) to 0.7490 (50% retracement) region, with the bullish RSI signal raising the risk for a larger recovery in the exchange rate.
  • A close above the 0.7650 (38.2% retracement) hurdle opening up the next topside hurdle around 0.7720 (23.6% retracement) to 0.7770 (61.8% expansion), which largely lines up with the November-high (0.7730).
EUR/USD

The near-term rebound in EUR/USD unravels as the European Central Bank (ECB) endorses a wait-and-see approach for monetary policy, and the pair may continue to consolidate over the remainder of the year as especially as the Federal Open Market Committee (FOMC) appears to be on course to deliver another three rate-hikes in 2018.

Even though the ECB notes that incoming information ‘indicates a strong pace of economic expansion and a significant improvement in the growth outlook,’ it seems as though the ECB will keep the door open to further expand its balance sheet as an ample degree of monetary stimulus ‘remains necessary for underlying inflation pressures to continue to build up and support headline inflation developments over the medium term.’ The lack of new details surrounding the ECB’s exit strategy is likely to keep EUR/USD under pressure as President Mario Draghi and Co. merely attempt to buy more time, and the pair may continue to give back the rebound from the November-low (1.1554) as it stages a failed attempt to tests the December-high (1.1940). Interested in having a broader discussion on current market themes? Sign up and join DailyFX Currency Analyst David Song LIVE for an opportunity to discuss potential trade setups!

EUR/USD Daily Chart

EUR/USD Daily Chart
  • Near-term outlook for EUR/USD remains capped by the 1.1960 (38.2% retracement) region, with the pair at risk for further losses as it struggles to hold above the former-resistance zone around 1.1810 (61.8% retracement) to 1.1860 (161.8% expansion).
  • In light of the market reaction to the ECB, the recent series of higher highs & low may continue to unravel, with break of the weekly-low (1.1718) raising the risk for a move back towards 1.1670 (50% retracement), with the next downside region of interest coming in around 1.1580 (100% expansion), which sits above the November-low (1.1554).
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--- Written by David Song, Currency Analyst

To contact David, e-mail dsong@dailyfx.com. Follow me on Twitter at @DavidJSong.

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