EUR/USD at major resistance as dollar weakness persists
James Chen February 15, 2018 6:44 PM
As the US dollar continued its persistent slump on Thursday despite enduring expectations of higher US inflation and interest rates, the EUR/USD rose to revisit major resistance around the 1.2500 handle, which is the area of recent 3-year highs.
As the US dollar continued its persistent slump on Thursday despite enduring expectations of higher US inflation and interest rates, the EUR/USD rose to revisit major resistance around the 1.2500 handle, which is the area of recent 3-year highs. US government bond yields remained elevated near new multi-year highs in the aftermath of Wednesday’s US Consumer Price Index that was significantly higher than expected for both the headline and core inflation data and Thursday’s US Producer Price Index that was significantly higher than expected for the core data. Despite rising bond yields and increasingly hawkish Fed anticipation, the dollar has been unable to shake its virtually unrelenting bearish sentiment, as the US dollar index currently wallows near 3-year lows.
Combined with a resilient euro that has remained well-supported on a rising eurozone economy and keen anticipation of monetary policy tightening by the European Central Bank, the heavily weakened US dollar has helped boost EUR/USD back up to the noted 1.2500-area resistance, slightly above which a new long-term high was reached late last month.
The week ahead will be important particularly for the euro, as key services and manufacturing data from Germany, France and the eurozone as a whole, will be released on Wednesday. More importantly, central bank meeting minutes will be released from the US Federal Reserve and European Central Bank on Wednesday and Thursday, respectively. The relative policy stances between the Fed and ECB in their last meetings, as shown in the minutes, will likely make a significant impact on EUR/USD.
As noted, the 1.2500 price area is currently the key level to watch as markets determine whether the heavily oversold US dollar will finally be supported or if it has more to lose in the short-term. If a bottom for the dollar is indeed established, any EUR/USD turn down from around 1.2500 resistance could presage another pullback targeting 1.2200-area support once again.
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.