EUR/USD rallied for a for a fourth consecutive session on Tuesday as the greenback weakened against most of its major counterparts. The weaker dollar in the early week has been attributed to remarks from U.S. president Trump that the Fed's path of monetary policy tightening is hindering fiscal stimulus efforts to boost the economy. Trump also accused China and Europe of currency manipulation.
EUR/USD touched a 13-month low last week prior to sharply reversing from support at the 1.1300 handle. The inversely correlated U.S. dollar index (DXY), in a similar fashion, traded at 13-month highs prior to turning lower. On a weekly chart, DXY posted a bearish shooting star candlestick last week, and if it holds near current levels by the end of the week, it will print a bearish evening star reversal candlestick pattern. The same patterns are seen for EUR/USD on an inverted basis. In addition to the potential reversal candlestick pattern for DXY, this week's closing print will also be important in relation to the 100- and 200-period moving averages, which have converged near 95.50.
DXY was last seen testing a horizontal level at 95.15, which acted as resistance in the fourth quarter of 2017 as well as in June and July this year. The index has been contained within a rising channel for the past three months, and further support is seen from the lower bound of the channel, currently around 94.70.
Positioning in the futures markets points to a clear bullish bias for the greenback, which is fueling the current sell-off. The latest commitment of traders report showed the speculative euro position flipping to a net short for the first time in 15 months. The euro had been held net long by a staggering 152,000 contracts only four months ago.
EUR/USD is seen fast approaching resistance at 1.1616. The level is considered significant as it marks the 2016 spike high and as it held the exchange rate higher in late 2017, best seen on a weekly chart. As well, the weekly open from the second week of August comes slightly below the level at 1.1567, suggesting that the rally at current levels may be stretched at this point. A 61.8% Fibonacci retracement measured from July highs to last week's lows falls at 1.1603 to create some confluence near 1.1616.
To the downside, 1.1510 is considered pivotal as it held the pair higher in May and June. There is also some support at 1.1553, as the level has been relevant on a daily chart and due to its proximity to the 20-day moving average, currently at 1.1546.
In addition to the Fed's release of monetary policy meeting minutes on Tuesday, the European Central Bank (ECB) will release minutes of its latest meeting on Wednesday. The Jackson Hole Symposium kicks off on Thursday and is also likely to be a driver of volatility to the currency markets this week.
Reference: INVESTOPEDIA
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