EUR/USD Analysis: USD sell-off helps build on the recent recovery

Haresh Menghani FXStreet

The US President Donald Trump criticized the Fed Chair Jerome Powell for raising interest rates and triggered a broad-based US Dollar sell-off on the first trading day of a new week. This coupled with fading safe-haven demand, ahead of the anticipated US-China trade talks, exerted some additional downward pressure on the greenback and helped the EUR/USD pair to reverse an early dip to sub-1.1400 level.

The pair built on overnight positive momentum and climbed further beyond the key 1.1500 psychological mark during the Asian session on Tuesday. Market participants seems to have largely negated widening German-Italian yields spread, led by fresh worries of crisis revival from Italy, with the USD price dynamics turning out to be an exclusive driver of the pair's up-move for the fifth consecutive session.

Moving ahead, this week's important release of the latest FOMC meeting minutes and the key speech by the Fed Chair Jerome Powell the central bank symposium in Jackson Hole will now play an important role in influencing sentiment surrounding the buck and eventually provide some fresh directional impetus.

From a technical perspective, the pair has now recovered 50% of its decline from July monthly high level of 1.1733 to 1.1301 (over 13-month low) and any subsequent up-move is likely to get extended towards 50-day SMA resistance, levels beyond the 1.1600 handle. A follow-through buying could lift the pair further towards testing a short-term descending trend-line resistance, extending from mid-May, currently near the 1.1690-1.1700 region.

On the flip side, any retracement back below the 1.1500 handle now seems to find immediate support near the 1.1485-80 region (38.2% Fibonacci retracement level), which if broken might turn the pair vulnerable to head back towards retesting the 1.1400 handle. Failure to hold the mentioned support levels would point to the end of the recent corrective rally and the resumption of the prior depreciating move.

Author

Haresh Menghani

FXStreet

Haresh Menghani is a detail-oriented professional with 10+ years of extensive experience in analysing the global financial markets.

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