The EUR/USD trend higher ran into a wall of selling above 1.2000 and the price action for the rest of this week should determine whether it simply a pause before the next leg higher, or the start of a deeper correction.
The European Central Bank meets on Thursday and while they are widely expected to remain on hold, there is speculation they may express concern over the strength of the single currency and its deflationary impact.
A dovish ECB might be the tipping point for the EUR/USD trend higher that started in late April around 1.0725 and peaked at 1.2014 on September 4. Drivers of the EUR/USD trend higher included EUR-favourable moves between German Bund and U.S. Treasury yields and favourable Euro zone data as compared to U.S. data. U.S. yields have started to move higher and recent EZ data suggests the economy is starting to stutter again – while the U.S. non-farm payroll report released on Friday was better than expected.
Support for the EUR/USD comes in at 1.1690/95 where the 38.2 Fibonacci retracement of the 1.1168/1.2014 move converged with the August 3 trend low. A break below 1.1690 would suggest a deeper correction is underway. Conversely, a break above 1.2020 would encourage EUR/USD bulls to position for the next leg higher. For more click on FXBUZ
(John Noonan is a Reuters market analyst. The views expressed are his own)
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.