Could EUR/USD head to 1.10 despite Fed hike?
Fawad Razaqzada March 10, 2017 11:38 PM
<p>As we reported the possibility on Thursday morning, ahead of the ECB meeting, the EUR/USD has indeed staged a rally. The sellers apparently started to […]</p>
As we reported the possibility on Thursday morning, ahead of the ECB meeting, the EUR/USD has indeed staged a rally. The sellers apparently started to exit their EUR/USD positions before the ECB meeting and then more of them did so when Mario Draghi hinted that further policy action is less likely because deflation risks have receded in the Eurozone. Today, the US monthly non-farm employment report come out significantly stronger than expected. Yet the dollar failed to move further higher. As we had noted previously, the March rate hike has already been priced in, thus no fresh reason for the buck to rise further ahead of the FOMC meeting next week. If the Fed signals that it will be tightening monetary policy more aggressively this year then that could spur a dollar rally. Otherwise, the dollar may correct itself before the next up leg potentially begins.
Indeed for now, the path of least resistance is to the upside for the EUR/USD. Several short term resistance levels have broken. The EUR/USD now faces potential resistance around 1.0675/80 (which was being tested at the time of writing), followed by the Fibonacci retracement levels at 1.0700 (61.8%) and 1.0755 (78.6%). But the key resistance area is further higher, between 1.0830 and 1.0875. That’s the top of the current range. It is possible that big stop orders are resting above that zone. Thus, the EUR/USD may push above this area before it turns lower from another, more significant, resistance level in the future. Two potential resistance areas above the 1.0830-75 range are at 1.0920/30 and then around 1.1000/35. The former is where the two Fibonacci extension levels converge, while the latter is the next psychological level of 1.1000.
At this stage it is difficult to say whether the EUR/USD will be able to climb to those levels. Any signs of weakness should be taken seriously, as the fundamental outlook is arguably still bearish for this pair. Indeed, should the EUR/USD break back below that 1.0460-1.0525 support area at some point, then this may pave the way for significant falls.
StoneX Financial Ltd (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.
No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.