EUR/USD: what will it take to break the consolidative range?

  • EUR/USD: bulls back in charge within weekly consolidation range.
  • EUR/USD: bulls await the retail sales for another attack through the 1.24 handle.

EUR/USD has rallied and fallen just shy of the 1.24 handle where 1.2320 now comes as a key support within this weekly consolidation phase between 1.2150 and 1.2555, (near-term upside target through 1.2440).

EUR/USD has been in the consolidation of 2017 Nov's rally to aforementioned highs where markets had been expecting the ECB to be playing catch up with the Fed in the early part of 2018 where traders began to unwind long dollar and overvalued positions. 

Typically, the dollar will tail off during the Fed's tightening cycle after an initial bid and this may be signalling that there is more downside to come in the greenback for the year ahead,(especially should the ECB be seen to tighten their own policy as soon as this fall), despite three further rate hikes in 2018 from the Fed. 

So what now?

Apart from the Whitehouse and Tillerson noise, the CPI data was not an upside surprise, more of a Goldilocks result and hence the dollar was sold off, down -0.22% on the day so far in DXY where the 10yr yields are now -0.57% at the time of writing. CPI showed headline consumer prices rising at an annualized 2.2% during February and 0.2% inter-month, but, taking out food and energy costs, CPI only rose 1.8% year/on year and by just 0.2% on a monthly basis vs 0.3% prior, and that is where the markets have started to discount a fourth or even a third rate hike in 2018 when coupled to the disappointment in the nonfarm payrolls wages data last Friday.

DXY underwater on nonfarm payrolls, but, watch the Libor/ OIS spread

Elsewhere, which also weighs on the greenback, are the OECD economic projections that were revised upwards. The pace of expansion over the 2018-19 period is expected to be faster than in 2017, (but tensions are appearing that could threaten strong and sustainable medium-term growth. The UK is expected to see the slowest growth rate among G20 in 2018/2019).

Eyes are now set on this week's retail sales and a disappointment there could spell real danger for the short term dollar bulls and open up the key 1.2550 target further.

EUR/USD levels

The technical outlook is bullish with RSIs heading higher and with the price holding above the important  50-D SMA at 1.2285. However, a break there opens risk to 1.22 the figure / 1.2180. To the upside,  1.24 the figure and 1.2440 are in focus. On the wide, the 2008-2018 resistance line is located at 1.2680 ahead of a wider 1.3190 as being the 50% retracement of the move down from 2008.

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