EUR/USD Advances for a Third Consecutive Session

April 10, 2018 — 12:45 PM EDT

EUR/USD advanced in European trading on Tuesday to climb above its 20-day moving average, on pace to post a third consecutive day of gains. Although there is some momentum behind the recent rally, the pair remains within a broader range that has been playing out for most of the year.

Friday's reversal from important technical support followed an underwhelming U.S. jobs report. The dollar has traded broadly weaker since. EUR/USD was lingering around a rising trendline that connects a low posted in April last year with a bottom printed in November, ahead of Friday's NFP data.

 

European Central Bank (ECB) official Nowotny stated in an interview with Reuters on Tuesday that the central bank would wind down its bond purchasing program this year, opening up the path for a rate hike. His comments triggered a brief spike in the exchange rate but did not have a significant overall impact, with the euro last seen trading about one-third of a percent higher versus the greenback, in line with the weaker dollar theme seen in most of the major currencies.

Nowotny's comments contradict the reminder from ECB Vice President Vitor Constancio on Monday that hastening policy tightening would put the economic recovery at risk. ECB president Draghi has indicated on several occasions in the past that the central bank is not considering raising rates until well after the end of bond purchases.

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Chinese President Xi expressed his intentions to cut import tariffs on Tuesday, which led to an easing of trade tensions and a renewed appetite for risk. The S&P 500 gapped higher to start the session, while high-yielding currencies top the leaderboard in FX among the majors in late European trading on Tuesday. The Japanese yen was the weakest among the major currencies, followed closely by the dollar.

The increase in U.S. producer prices for March exceeded analyst expectations and provided some dollar support in early North American trading. The Labor Department attributed the rise to higher healthcare and food costs, and the overall upbeat report suggests upward pressure on inflation.

On Wednesday, the Federal Reserve will release minutes from its latest monetary policy meeting, which stands to have a high impact on the dollar. The central bank raised rates at its March 21 meeting but left expectations unchanged for three rate hikes this year. Market participants will be looking for any further clues in the path of normalization and the Fed's latest stance on trade tensions. Ahead of the Fed minutes, the Bureau of Labor Statistics will report its latest CPI and core CPI figures.

Since the middle of January, EUR/USD has traded in a well defined 350-pip range. With two major trendlines converging, a technical breakout is seen on the near-term horizon. Resistance comes in the form of a declining trendline that is best seen on a weekly chart. The trendline connects a high from 2008 with peaks produced in 2014 and has capped several attempts in the year thus far.

In addition to the trendline, there are several other indicators that combine to form a confluence. On a monthly chart, the 100- and 200-period moving averages have converged near the 1.2500 handle. There is also 38.2% Fibonacci retracement measured from the 2008 high to last year's low. Major downside support comes from a rising trendline originating from last April's low.

 

In the near term, EUR/USD hit resistance today from a 61.8% Fibonacci retracement measured from the March high to the low posted slightly ahead of Friday's NFP report. The retracement falls at 1.2376, and some selling pressure is seen from the Fibonacci level on a four-hour chart. The next level of resistance at 1.2446 reflects a high posted in early March, which is currently near the previously mentioned declining trendline found on a weekly chart.

The first level of support comes from the 20-day moving average, currently at 1.2317. More important support is at the one-year long rising trendline, currently around 1.2280.