|

EUR/USD - Bottom in place?

  • Friday's Doji indicates indecision/bearish exhaustion, but positive follow-through needed.
  • Risk reversals improve slightly.
  • Focus on US CPI.

Having posted a "doji" candle on Friday, the EUR/USD pair jumped to 1.2285 in Asia. A positive close today, preferably above 1.2287 (Friday's close) would confirm the bull doji reversal, meaning the pair has bottomed out at 1.2205 (Friday's low).

Also, risk reversals have improved somewhat. As of writing, the one-month 25 delta risk reversals gauge is seen at -0.975 vs. Friday's print of -1.05. The slight uptick indicates the premium claimed by the EUR puts (bearish bets) over the EUR calls (bullish bets) has dropped. Though encouraging, the risk reversals gauge is still well below the high of 0.55 seen in mid-January. So the bias on the EUR remains bearish.

Further, the chart-driven recovery could be short-lived if the US CPI (due this Wednesday) beats estimates.  A higher inflation in the US against the backdrop of fiscal expansion could send 10-year yield well above 3 percent, thus leading to another round of sell-off in the equities. In such a case, the EUR/USD could come fell the gravitational pull, although the common currency may remain well bid against other majors, courtesy of the Eurozone's current account surplus.

On the other hand, a weak CPI could weaken the will likely weigh over yields, helping EUR/USD claw back to its recent highs above 1.25.

EUR/USD Technical Levels

Momentum studies remain negative - 5DMA, 10DMA slope downwards to indicate a bearish setup. However, confirmation of bull doji reversal would open doors for 1.2402 (61.8% Fib R of recent drop). A violation there would shift attention to 1.2523 (recent high).

On the downside, a close below 1.2206 (Friday's doji candle low) could yield a drop to 1.2162 (38.2% Fib R of Nov-Jan rally), under which a major support is lined up at 1.2079 (50-day MA).

Author

Omkar Godbole

Omkar Godbole

FXStreet Contributor

Omkar Godbole, editor and analyst, joined FXStreet after four years as a research analyst at several Indian brokerage companies.

More from Omkar Godbole
Share:

Editor's Picks

EUR/USD flat lines below 1.1900; divergent Fed-ECB expectations offer support

The EUR/USD pair struggles to capitalize on the overnight bounce from the 1.1835-1.1830 region and oscillates in a narrow band during the Asian session on Thursday. Spot prices currently trade around the 1.1875 area, remaining nearly unchanged for the day and staying within striking distance of an over one-week high, reached on Tuesday, amid mixed cues.

GBP/USD slips heading into the Thursday trading window

The Pound Sterling pulled back from four-year highs on Wednesday, weighed down by a combination of Bank of England dovishness and UK political uncertainty, even as the US Dollar weakened on soft labor market revisions. 

Gold posts modest gains above $5,050 as US-Iran tensions persist despite strong labor data

Gold price trades in positive territory near $5,060 during the early Asian session on Thursday. The precious metal edges higher despite stronger-than-expected US employment data. The release of the US Consumer Price Index inflation report will take center stage later on Friday. 

Bitcoin holds steady despite strong US labour market

Bitcoin briefly bounced from $66,000 to above $68,000 but slightly reversed those gains following Wednesday's US January jobs report. The top crypto is hovering around $67,000, down 2% over the past 24 hours as of writing on Wednesday.

The market trades the path not the past

The payroll number did not just beat. It reset the tone. 130,000 vs. 65,000 expected, with a 35,000 whisper. 79 of 80 economists leaning the wrong way. Unemployment and underemployment are edging lower. For all the statistical fog around birth-death adjustments and seasonal quirks, the core message was unmistakable. The labour market is not cracking.

XRP sell-off deepens amid weak retail interest, risk-off sentiment

Ripple (XRP) is edging lower around $1.36 at the time of writing on Wednesday, weighed down by low retail interest and macroeconomic uncertainty, which is accelerating risk-off sentiment.