EUR/USD: US government shut down, ECB, where now from here?

EUR/USD bears take charge.
EUR/USD testing below the 21-4hr SMA.

Ross J Burland FXStreet

EUR/USD closed on Friday below the 4- hr 21 SMA located at 1.2237 at 1.2219 with strong offers in EUR/JPY. In Tokyo, EUR/USD is currently trading at with a high of 1.2274 and a low of 1.2225.

With the cross heading down towards 135.20 on Friday, with USD/JPY tanking on the US government shutdown noise, EUR/USD was trapped despite a positive run in the European session on the back of firm data that rose the inflation prospects and end of QE speculation, (ahead of this week's ECB), which subsequently were underpinning yields pushing the 10-year German yield towards 0.60%. However, the tables turned sharply in a continuation from the London fade at the highs of 1.2295 when NY sellers emerged at around 1.2250 while US yields rallied.

US Government shut-down

The Senate failed to pass a bill to approve a funding extension through February 16th.
USD fragility to be exacerbated by Government shutdown, EUR/USD heading for fresh highs.

"Given dollar's fragility, there are good chances that this news will exacerbate the negative sentiment towards the American currency, and result in the EUR/USD pair jumping through the mentioned multi-year high of 1.2322, with the next relevant resistance "coming at 1.2460. However, and ahead of the ECB's the dollar may witness a sudden appreciation, triggered by profit-taking," explained Valeria Bednarik, chief analyst at FXStreet.

EUR/USD levels

Valeria also argued also that, technically, the daily chart for the pair shows that the bullish stance persists, with the price firmly above all of its moving averages and the Momentum indicator resuming its advance well into positive territory after correcting extreme overbought conditions:

"Last week seems to have been a consolidative one ahead of looming central banks, and clearer clues. Shorter term, and according to the 4 hours chart, the pair presents a neutral stance, now a couple of pips below a flat 20 SMA but above bullish larger ones, as technical indicators head marginally lower around their mid-lines. An immediate resistance comes at 1.2235, but a stronger one is located in the 1.2280 price zone, with gains beyond this last probably resulting in higher highs beyond the multi-year one at 1.2322."

Author

Ross J Burland

FXStreet

Ross J Burland, born in England, UK, is a sportsman at heart. He played Rugby and Judo for his county, Kent and the South East of England Rugby team.

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