EUR/USD posts a daily close below a key support level
The 61.8 retracement level @ 1.1187 has been a stubborn support level that sellers have failed to crack since the start of the year, but they finally managed that in trading yesterday and this could precipitate further weakness in EUR/USD from a technical perspective.
The close below removes a clear line of defense for buyers and opens up the path towards support at 1.1110 and potentially 1.1000 from hereon.
There hasn’t been much follow through action just yet with the pair sitting in a 16 pips range so far today but look out for an extension of that range ahead of US trading later. The key risk event today will be the release of US durable goods orders data at 1230 GMT.
I reckon that will set the tone on whether or not we will see any further extension of the dollar’s gains from overnight trading. That said, even if the data disappoints, I reckon there’s only limited scope for the greenback to weaken considering the global macro environment currently (or at least what markets perceive it to be).
The dollar strength so far this week can be said to be attributed to equity flows among other things, but a simpler explanation is that there just isn’t any better currency worth putting your money behind at the moment.
Europe is facing economic struggles via Germany and political struggles via Italy. The UK continues to be stuck between a rock and a hard place because of Brexit. In Australia, the RBA is now anticipated to cut rates in the next month and in New Zealand, the RBNZ isn’t far away from walking down that same path. Meanwhile, in Canada, we saw the BOC also shift to a more neutral bias overnight.
Adding to that, US yields are also largely outweighing its counterparts so the dollar remains the best of a bad bunch and that’s reason enough for it to hold on to gains for now.