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EURUSD Cooling Off After Failing to Test 1.05

EURUSD Cooling Off After Failing to Test 1.05

Brendan Fagan, Contributor


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EURUSD – Talking Points

  • EURUSD fails to hold above 200-day moving average
  • Post-PPI spike falls short of testing key 1.05 level
  • Daily candle gives some hope to bears after brutal few weeks
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EURUSD has cooled from session highs after getting a shot in the arm during the New York session following soft PPI data. The US Dollar took another sharp leg lower in the minutes following 8:30 EST as market participants rejoiced over yet another soft inflation print. Consecutive soft prints in CPI and PPI have bolstered recent Fed commentary that has set the table for a slowing of the pace of rate hikes. After printing a session high of 1.0481, a retracement back below the 200-day moving average materialized as the US Dollar rebounded slightly.

When we look at the daily timeframe on EURUSD, we can see the clear break of descending trendline resistance has turned into a massive breakout. That trendline resistance had penned in price for the entirety of this move lower throughout the year, with each advance getting rejected. But this resistance broke as the market caught a scent of a potential slowdown from the Federal Reserve. Less than two weeks ago, EURUSD was trading below 0.9750. As we now sit just shy of the 1.05 handle, traders can begin to appreciate the magnitude of the move in recent sessions.

EURUSD Daily Chart


Chart created with TradingView

When we get into the smaller timeframes, we can see that EURUSD has had a choppy ride to higher prices. An advance in late-October that stretched briefly above parity was sold back down to support at 0.9740 before this rollercoaster of a rally began. On two occasions, EURUSD upside stalled out at resistance just below 1.01, but this zone was obliterated in the post-CPI squeeze last week. Since then, a mix of fresh longs and shorts covering has propelled EURUSD to prices that haven’t traded since August.

EURUSD 2 Hour Chart


Chart created with TradingView

It should be noted that bulls have taken EURUSD a long way in a short amount of time as traders reassess the future path of Fed policy. While the US inflation prints are good news, the fight remains far from over. This has been echoed in Fedspeak this week by Christopher Waller and Vice Chair Lael Brainard. With that in mind, it may be too early to take a victory lap and call for an end to Fed tightening. As we have learned in recent months, all it takes is one hot inflation print to unwind this optimism that has built up.

Looking at Tuesday’s action, it is notable that bulls were unable to even test the 1.05 area. Their advance was immediately sold down to the key 1.0365 level, a spot that EURUSD has failed to close above for the last two sessions. I will be keeping this level in mind into the end of the session, as a close above indicates bulls are not yet ready to rollover. That being said, the long wick on the daily candle does worry me, as it shows bears are starting to dig their heels in.

With all this in mind, EURUSD may look to revisit that 200-day moving average once again or even the 1.05 psychological level should there be some overshoot. Should a broad USD rebound materialize, I would look for EURUSD to trade back to 1.02.

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--- Written by Brendan Fagan

To contact Brendan, use the comments section below or @BrendanFaganFX on Twitter

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.