By Senad Karaahmetovic
EUR/USD is trading modestly lower on Monday after staging a key reversal day candle on Friday following a much stronger-than-expected jobs report in the U.S.
Not only could the EUR/USD not close near weekly highs, but the failure to secure a green close occurred while the pair was testing a key near-term resistance. The multi-year ascending trend line that connects lows from 2016 and 2020 was finally breached in April last week with EUR/USD staying below it for the last 10 months.
For the first time since last April, bulls have been able to test this key resistance level with several failed attempts in recent weeks. While the EUR/USD managed to close above the trend line on Wednesday, the pullback on Thursday and Friday meant that the pair closed below the trend line on a weekly basis - creating a failed breakout at the key level, which is usually a very strong technical indicator the price action is changing its direction.
EUR/USD price is now testing nearby support at 1.0780 and is likely to correct to at least 23.6% Fibonacci retracement of the September 2022 - February 2023 move higher that saw the pair gain over 15%. The 23.6% Fibonacci support comes in at 1.0675 while the more important 38.2% is located at 1.0456.
On the upside, the zone around 1.09 will continue to act as major resistance. A break above this resistance block would pave the way for much higher levels in EUR/USD, including the 100 weekly moving average at 1.1059.
What are analysts saying?
Bloomberg FX strategists: “The most interesting thing happened after the knee-jerk reaction on the NFP report. Analysts called it a repeat of last year’s surprise beat that came down to seasonality factors, with some desks simply branding the release an outlier and so forth. Still, the dollar never gave up even half of its gains as the market tried to make sense of the payrolls data. If indeed the market thought this was an one-off event, the dollar should have erased its gains, as we’ve seen it do before this year. This time things did indeed feel different, and the ISM Services figures appeared to confirm that something game-changing was underway.”
BofA analysts: “Sharp moves higher in USD on Thursday and Friday have left each of our model CTA’s short USD positions at risk of a cover. In order, the pairs most near their trigger points are MXN, EUR, AUD, GBP, and finally JPY.”
ING FX strategists: “We think DXY could consolidate around the 103.00 mark until new first-tier data in the US are released next week and could reignite the re-rating of US growth and Fed rate expectations.”