- EUR/USD bulls stepping back to the table s US dollar corrects.
- Busy week ahead for European and US politics, including the ECB.
EUR/USD is consolidating on a busy events week ahead throughout the world, including the European Central Bank interest rate decision.
At the time of writing, EUR/USD is trading at 1.2074 having travelled between a range of 1.2053 and 1.2086 so far on the day.
The US dollar has been the focus for a number of sessions and today, the DXY reached a one-month high as risk aversion swept the floor of the bears.
However, the move was capped and further downside could be on the cards according to technical analysis and a 38.2% Fibonacci expectation:
Joe Biden will be inaugurated as the next US president on Wednesday and the implications for the US dollar have evidently been baked into positioning.
The positioning data ending 12 January from Commodity Futures Trading Commission (CFTC) display a sharp increase in USD net-shorts in the last reported week.
In fact, the aggregate dollar net positioning has fallen from -16% to -19% of open interest.
This is edging below the multi-year lows of -18% seen last September.
A significant unwind of such an oversold market will likely see the greenback correct further in the spot market.
Moreover, Biden's plan for a $1.9 trillion stimulus package has fuelled a rise in US Treasury yields which would arguably reverse the value of the dollar higher.
Meanwhile, major currencies have remained within established ranges, watching carefully the new administration's stance on the dollar.
This will also be closely watched by emerging markets and especially China. The nation's economic rebound has fuelled a bid in riskier asset classes, sending the dollar lower over the past few months.
Currency wars will be a theme back on to the market's agenda and Janet Yellen’s confirmation hearing as US Treasury Secretary will be a focus.
She may well be asked what she thinks about the US dollar. Expectations are that she will lean on the cautious side and not say too much, but overall favour a strong dollar policy.
ECB in focus
Meanwhile, European policymakers will take centre stage this week where we will also see meetings of both the ECB and EU leaders.
While little is expected of the ECB after December’s easing measures, markets will nonetheless be tuned in to what President Lagarde has to say about the exchange rate in relation to an already subdued inflation rate.
On Wednesday, markets will be keen to see what comes of the EU summit.
The coronavirus spread is concerning and co-ordination of the vaccination roll-out will be paramount for the risk-on sentiment.
The implementation of the EU Recovery Fund has been a key topic baked into the euro as nations unite in their plight to fight off the disease.
In other politics, the CDU leadership contest in Germany and ongoing Italian political uncertainty remain risks on the back burner.
Lastly, there is an underbelly of support for the euro from a structural basis whereby the European Commission is seeking means on improving the international role of the euro and replacing the petrodollar.
This fundamental backdrop, while distant to spot-fx for the meantime, will likely have strong support from those countries trying to find ways to extricate themselves from dollar dominance.
EUR/USD technical analysis
As anticipated in this week's ''The Chart of the Week'', the euro is correcting:
EUR/USD prior analysis, 4-hour chart
Source: The Chart of the Week: EUR/USD enters the bear's lair
Current spot, live market:
As can be seen, the euro is indeed correcting the strength in the greenback.
From a daily corrective basis, the 38.2% and old support are earmarked around 1.2120:
Evidently, there is room for the US dollar to give back significant ground within its monthly correction, but the overall picture remains bullish towards at least a 38.2% Fibonacci retracement which would cap advances in the euro.
DXY monthly correction
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.
If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.
FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.
The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.
Recommended content
Editors’ Picks
EUR/USD holds above 1.0700 ahead of key US data
EUR/USD trades in a tight range above 1.0700 in the early European session on Friday. The US Dollar struggles to gather strength ahead of key PCE Price Index data, the Fed's preferred gauge of inflation, and helps the pair hold its ground.
USD/JPY stays above 156.00 after BoJ Governor Ueda's comments
USD/JPY holds above 156.00 after surging above this level with the initial reaction to the Bank of Japan's decision to leave the policy settings unchanged. BoJ Governor said weak Yen was not impacting prices but added that they will watch FX developments closely.
Gold price oscillates in a range as the focus remains glued to the US PCE Price Index
Gold price struggles to attract any meaningful buyers amid the emergence of fresh USD buying. Bets that the Fed will keep rates higher for longer amid sticky inflation help revive the USD demand.
Sei Price Prediction: SEI is in the zone of interest after a 10% leap
Sei price has been in recovery mode for almost ten days now, following a fall of almost 65% beginning in mid-March. While the SEI bulls continue to show strength, the uptrend could prove premature as massive bearish sentiment hovers above the altcoin’s price.
US core PCE inflation set to signal firm price pressures as markets delay Federal Reserve rate cut bets
The core PCE Price Index, which excludes volatile food and energy prices, is seen as the more influential measure of inflation in terms of Fed positioning. The index is forecast to rise 0.3% on a monthly basis in March, matching February’s increase.