EUR/USD is at interesting juncture

As you can see from the daily chart (below), rising trend support comes in at 1.3680 and a closing break below this trend could see good horizontal support come into play around 1.3625 to 1.3645.

On the upside, downtrend resistance drawn from the October high of 1.3832 kicks in at 1.3803 and it could be telling that the pair rallied to 1.3894 on Friday, but failed to close above the years high. While poor liquidity is obviously a key issue at present, the failed break will concern the EUR bulls who would have clearly loved to see a daily close above 1.3832.

On a fundamental basis the move higher was premised on comments from ECB member Oliver Weidmann. Mr Weidmann is well known as a hawk and has been outspoken against rate cuts and unconventional monetary easing, so his comments that lower inflation is not a licence for ‘arbitrary easing’ shouldn’t come as a huge surprise. Mario Draghi gave an interview in German publication Der Spiegel detailing that there is no urgent need to cut rates and sees no deflation signs, however there hasn’t been much of a pop in EUR/USD in early Asia trade. With EUR/USD above 1.38 it seems logical that the market has priced out rate cuts anyhow, so again these comments shouldn’t surprise too many.

So technically I am watching a closing break of 1.3803 and 1.3832, or on the downside a close below 1.3680. Momentum indicators on the daily chart are falling, but are still at elevated levels suggesting that pullbacks will be bought.


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