EUR/USD continues to pare ECB-driven gains

<p>After last week’s dramatic surge for the euro and plunge for the dollar, EUR/USD has begun the new trading week by giving back some of […]</p>

After last week’s dramatic surge for the euro and plunge for the dollar, EUR/USD has begun the new trading week by giving back some of those gains as the US dollar continued its tentative rebound early Monday.

The EUR/USD breakout last week was caused by a short squeeze after ECB President Mario Draghi took surprisingly milder-than-expected action this past Thursday to stimulate the European economy. As a result of this surprise, the euro rose sharply, prompting a plunge for the US dollar that resulted in its largest daily drop in years.

The ECB’s announcement Thursday was followed by Friday’s US Non-Farm Payrolls report that showed a better-than-expected 211,000 jobs added to the US economy. While this was a bullish sign for the dollar in that it provided further support for a December rate hike by the Fed, it failed to put a large dent in the dollar’s ECB-driven downside momentum.

That began to change early Monday, as the dollar made a further rebound and appeared poised to regain strength in the run-up to next week’s pivotal and long-anticipated Fed meeting. For the EUR/USD currency pair, despite last week’s rare surge, the bias remains moderately bearish in light of the continuing monetary policy divergence between the ECB and Fed.

EUR/USD Daily Chart

 

From a technical perspective, last week’s breakout pushed EUR/USD above the key 1.0800 level up to its 50-day moving average before beginning a tentative retreat. This retreat was extended early Monday back down to the 1.0800 level before rebounding.

In the event of a breakdown and sustained return below 1.0800, EUR/USD should see a potential resumption of its previously strong bearish bias, with the key downside target remaining at the major 1.0500 support level. Longer-term, further downside targets continue to reside at 1.0200 and parity (1.0000).

Join our live webinars for the latest analysis and trading ideas. Register now

GAIN Capital UK Limited (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.

For further details see our full non-independent research disclaimer and quarterly summary.