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EURUSD – An uninspiring breakout

Running out of steam?

What a week it’s been for the dollar. Since last week’s poor ADP we’ve had strong ISM data, hawkish Fed commentary and, finally, a knockout jobs report.

Suddenly, it feels that a tapering announcement is almost upon us and the data is pointing to good times ahead. What a time to be bullish on the dollar.

Which makes me wonder whether so much is now baked into expectations, could the dollar could be primed for a pull back? The longer-term outlook is very promising but corrections do happen along the way.

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A look at the EURUSD chart makes me even more curious. The pair experienced a very modest correction recently, not even reaching the 38.2 fib in the process, at which point a data and Fed-infused dollar rally sent it tumbling again.

After breaking support, it wouldn’t be a surprise to see it experience another sizeable fall, triggering stops along the way to propel it lower.

But this didn’t happen. It made a new low then pulled back. The momentum indicators are hardly inspiring. Could it be that the rally in the greenback is a little exhausted and we may see a pause ahead of the Jackson Hole later this month, at which many are expecting a deluge of Fed warnings about impending tapering?

Perhaps I’m reading too much into this lacklustre breakout. There’s plenty of things that could launch the dollar once more – two Fed speakers today, CPI Wednesday, etc – but this very much looks like a red flag to me.

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Craig Erlam

Craig Erlam [5]

Senior Market Analyst, UK & EMEA at OANDA [6]
Based in London, Craig Erlam joined OANDA in 2015 as a market analyst. With many years of experience as a financial market analyst and trader, he focuses on both fundamental and technical analysis while producing macroeconomic commentary. His views have been published in the Financial Times, Reuters, The Telegraph and the International Business Times, and he also appears as a regular guest commentator on the BBC, Bloomberg TV, FOX Business and SKY News. Craig holds a full membership to the Society of Technical Analysts and is recognised as a Certified Financial Technician by the International Federation of Technical Analysts.
Craig Erlam
Craig Erlam

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