EUR/USD hits 3-year high as dollar fails to catch bid

The dollar was unable to find a bid on the back of today’s mixed-bag inflation and retail sales data from the world’s largest economy.

The dollar was unable to find a bid on the back of today’s mixed-bag inflation and retail sales data from the world’s largest economy. As a reminder, the headline Consumer Price Index rose only by 0.1% month-over-month in December, which caused the year-over-year rate to decline to 2.1% from 2.2% previously, as expected. Core CPI, however, rose by a stronger-than-expected 0.3% month-over-month, which helped to lift the year-over-year rate to 1.8%. Meanwhile, both headline and core retail sales rose 0.4% month-over-month each, with the headline missing and core beating expectations. The dollar bulls were unimpressed by these figures and decided to step aside ahead of the long weekend with US banks being closed on Monday in observance of Martin Luther King Day. The FX markets will operate normally, although volumes are likely to be low, while US stocks will be shut for trading and US index futures will close when London goes home. Meanwhile the euro has found additional support from news German political leaders have apparently agreed to begin formal talks to form a “grand coalition.” As a result, the EUR/USD has surged to 1.2150, thus achieving its best level since December 2014.

The technical outlook on the EUR/USD obviously looks bullish following its move back above the 2018 opening price of about 1.20 and its subsequent break above long-term resistance at 1.2040/50 area, which was the low back in the summer of 2012 when we are at the height of the Eurozone debt crisis. Today it has also broken above last year’s high of 1.2090/5 to go north of 1.2150. Thus, the path of least resistance is to the upside and will remain that way until and unless price creates a reversal pattern at higher levels or breaks below a previous swing point, such as this year’s low at 1.1915.

Going forward, we expect the dips into old resistance areas such as 1.2090 and 1.2060 to be supported. But we will turn cautious in the event price goes back below the yearly open, at 1.2000 and will drop our bullish bias completely in the event it breaks below that 1.1915 level. As price is breaking out to new multi-year highs, there are not a lot of further immediate prior reference points to watch. But there are lots of Fibonacci levels, which can sometimes provide “invisible” support or in this case resistance. As per the chart, the next Fibonacci level comes in at just below 1.2140, which marks the 127.2% extension level of the most recent corrective move. The 161.8% extension level of the same swing is at just below the 1.22 handle. Meanwhile the 127.2% extension level of the longer-term price swing from the 2017 high comes in at just below 1.2240. It is also worth watching the round and mid figures, such as 1.2150, 1.2200, 1.2250 etc. for signs of resistance. Ultimately, though, the trend is bullish, so any short-term weakness should be treated as a retracement rather than reversal until there is a clear break down in market structure.

Build your confidence risk free
Join our live webinars for the latest analysis and trading ideas. Register now

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.

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