EUR/USD Bulls Resurface in US Trading

July 10, 2018 — 3:28 PM EDT

EUR/USD pared early day losses during the U.S. and European overlap on Tuesday, after briefly trading below the 1.1700 handle. The pair has been weighed down by a stronger dollar since Monday but has erased the bulk of today's early day losses and has held above support.

On Monday, the trade-weighted dollar index (DXY) turned higher from the 76.4% Fibonacci retracement of the rally that began as a result of the June European Central Bank (ECB) meeting. The index broke above 94.18, which is considered the neckline of a double top pattern that formed in late June. The bullish breach invalidates the pattern and signals a bullish near-term bias. At the same time, DXY has struggled to make a sustained break above 95.00 since late May. Recent weekly candlestick patterns indicate strong selling pressure from resistance.

Early day selling in EUR/USD today was setting up an evening star candlestick pattern on a daily chart; however, a firm bid during the North American session is preventing the pattern from being formed. The pair retraced about three-quarters of early day losses during the overlap today and is set up to print a doji candle on a daily chart, which signals that neither bulls nor bears are in control.

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On the economic calendar this week, the most likely event to trigger volatility is the U.S. consumer price index (CPI) figures, scheduled for release on Thursday. Analysts are expecting CPI and core CPI to remain unchanged at 0.2% in June. An upside surprise could provide the catalyst dollar bulls are looking for, especially after the softer-than-expected average hourly earnings and unemployment rate from last week's NFP reading.

Despite bearish dollar pressure in the first half of the U.S. session today, the greenback has posted an impressive recovery in the early week. The only major currency to gain against the dollar on Tuesday, as of the end of the European session, was the British pound. GBP/USD dropped sharply on Monday after news that two ministers resigned because of Prime Minister Theresa May's Brexit plans. The recovery in the pair stalled earlier today after weaker-than-expected U.K. data.

The Japanese yen is the weakest major currency in the early week. USD/JPY broke above the 111.00 handle today, which had been a significant barrier in June and at the start of July. The pair is on the verge of breaking above a high set in May as well a declining trendline that originates from early 2017.

 

On a four-hour chart, EUR/USD is seen holding above a horizontal level at 1.1714, and candlestick patterns support a potential turn or at least a bounce. A break below the level could see the pair extend losses toward support at 1.1641, close to the lower bound of a rising trend channel that originates from lows printed in late June. There is some resistance at 1.1741, but bigger resistance is found at the upper line of the same channel as it triggered a turn lower on Monday.

To the upside, an important level of interest falls at 1.1836. The level reflects resistance that held it lower in June, but more importantly, it is likely an area that has built up stops from bearish positioning that followed the June ECB meeting, and as such, a source of liquidity. For the inversely correlated U.S. dollar index, support is seen at 94.10. Bulls will want to see the level hold to maintain the early week momentum. Upside resistance remains near the 95.00 handle.