EUR USD off lows but remains pressured under 1 0800

EUR/USD began the new year by dipping under major support around the 1.0800 level, which is also where its 50-day moving average is currently situated. It has since followed through on that downside move by sinking further under 1.0800 as the dollar continued to strengthen and the euro was hit on Tuesday by weaker-than-expected inflation (CPI) data.

Prior to the current support breakdown, EUR/USD had been in consolidation above the 1.0800 support level and generally sandwiched between two major moving averages – the noted 50-day to the downside and the 200-day to the upside. With this consolidation and major support now tentatively broken to the downside, the currency pair could have significantly further to fall.

Wednesday afternoon saw a modest lift for EUR/USD as the US dollar pulled back due to the release of the minutes from December’s FOMC meeting. In those minutes, it was revealed that some members expressed concern over low inflation and felt some unease with regard to raising interest rates, even though the vote to hike rates turned out in the end to be unanimous.

Despite this moderate rise, the longer-term directional bias for EUR/USD remains bearish in light of continuing divergent monetary policy between the Fed and ECB, as well as the clear long-term downtrend for the currency pair.

If EUR/USD manages to continue trading below the key 1.0800 level and 50-day moving average, now as resistance, the next major downside target remains around the 1.0500 support level, which was last approached in early December. On any further breakdown below March’s sub-1.0500 low, longer-term downside targets stand at 1.0200 and parity.