EUR/USD rally showing signs of exhaustion after dollar’s big slump
Fawad Razaqzada September 8, 2017 6:06 PM
As the dollar sold off again, the EUR/USD managed to climb to a new 2017 high of around 1.2090 this morning before pulling back as traders booked profit ahead of the weekend. From a technical perspective, there may be a possibility we have seen a near-term top, although at this stage this is just a potential scenario.
As the dollar sold off again, the EUR/USD managed to climb to a new 2017 high of around 1.2090 this morning before pulling back as traders booked profit ahead of the weekend. From a technical perspective, there may be a possibility we have seen a near-term top, although at this stage this is just a potential scenario. At around 1.20-1.21, we already know that the EUR/USD is testing key long-term levels, and the ECB is evidently becoming worried about the high exchange rate even if it hasn’t said so explicitly. Interestingly, the EUR/USD has not yet managed a daily close above 1.2040/45 area, which was the last significant low hit back in July 2012, when the Eurozone debt crisis was at its peak. Once support, this level could potentially turn out to be the new long-term resistance going forward. What’s more, the EUR/USD looks like it has failed to hold its break above the prior 2017 high of 1.2067 hit at the end of August, when it formed an inverted hammer candle. Today’s price candle also has a similar shape. These types of candles point to exhaustion and with the RSI also in a state of negative divergence with price (as it has made a lower high near ‘overbought’ level of 70), one can make a case for a EUR/USD reversal here. That being said, though, none of the key support levels have broken down yet to suggest the sellers are taking charge. First and foremost, the bears need to see a break below Thursday’s close of 1.2015. Once this condition is met then they require a break in market structure. The last swing low was at 1.1825 prior to the latest rally. Any move below 1.1825 would technically be bearish as we will then have our first lower low. So taking everything into account, at this stage this is a potentially bearish setup for the EUR/USD. But the bullish view could easily re-establish upon a decisive break above that 1.2040/5 level. In this potential scenario, the bulls may then aim for the next Fibonacci extension levels at 1.2133 (127.2%) and then 1.2218 (161.8%). In any case, the next move on the EUR/USD could be very interesting to observe next week.
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.