The dollar was unable to find a bid on the back of today’s mixed-bag inflation and retail sales data from the world’s largest economy. As a reminder, the headline Consumer Price Index rose only by 0.1% month-over-month in December, which caused the year-over-year rate to decline to 2.1% from 2.2% previously, as expected. Core CPI, however, rose by a stronger-than-expected 0.3% month-over-month, which helped to lift the year-over-year rate to 1.8%. Meanwhile, both headline and core retail sales rose 0.4% month-over-month each, with the headline missing and core beating expectations. The dollar bulls were unimpressed by these figures and decided to step aside ahead of the long weekend with US banks being closed on Monday in observance of Martin Luther King Day. The FX markets will operate normally, although volumes are likely to be low, while US stocks will be shut for trading and US index futures will close when London goes home. Meanwhile the euro has found additional support from news German political leaders have apparently agreed to begin formal talks to form a “grand coalition.” As a result, the EUR/USD has surged to 1.2150, thus achieving its best level since December 2014.
The technical outlook on the EUR/USD obviously looks bullish following its move back above the 2017 opening price of about 1.20 and its subsequent break above long-term resistance at 1.2040/50 area, which was the low back in the summer of 2012 when we are at the height of the Eurozone debt crisis. Today it has also broken above last year’s high of 1.2090/5 to go north of 1.2150. Thus, the path of least resistance is to the upside and will remain that way until and unless price creates a reversal pattern at higher levels or breaks below a previous swing point, such as this year’s low at 1.1915.
Going forward, we expect the dips into old resistance areas such as 1.2090 and 1.2060 to be supported. But we will turn cautious in the event price goes back below the yearly open, at 1.2000 and will drop our bullish bias completely in the event it breaks below that 1.1915 level. As price is breaking out to new multi-year highs, there are not a lot of further immediate prior reference points to watch. But there are lots of Fibonacci levels, which can sometimes provide “invisible” support or in this case resistance. As per the chart, the next Fibonacci level comes in at just below 1.2140, which marks the 127.2% extension level of the most recent corrective move. The 161.8% extension level of the same swing is at just below the 1.22 handle. Meanwhile the 127.2% extension level of the longer-term price swing from the 2017 high comes in at just below 1.2240. It is also worth watching the round and mid figures, such as 1.2150, 1.2200, 1.2250 etc. for signs of resistance. Ultimately, though, the trend is bullish, so any short-term weakness should be treated as a retracement rather than reversal until there is a clear break down in market structure.
Risk Warning Notice Foreign Exchange and CFD trading are high risk and not suitable for everyone. You should carefully consider your investment objectives, level of experience and risk appetite before making a decision to trade with us. Most importantly, do not invest money you cannot afford to lose. There is considerable exposure to risk in any off-exchange transaction, including, but not limited to, leverage, creditworthiness, limited regulatory protection and market volatility that may substantially affect the price, or liquidity of the markets that you are trading. Margin and leverage To open a leveraged CFD or forex trade you will need to deposit money with us as margin. Margin is typically a relatively small proportion of the overall contract value. For example a contract trading on leverage of 100:1 will require margin of just 1% of the contract value. This means that a small price movement in the underlying will result in large movement in the value of your trade – this can work in your favour, or result in substantial losses. Your may lose your initial deposit and be required to deposit additional margin in order to maintain your position. If you fail to meet any margin requirement your position will be liquidated and you will be responsible for any resulting losses.