EUR/USD – A major break lower

How much further will it fall?

The dollar rallied strongly on Wednesday after data showed inflation rose to a 31-year high in the US.

Coming on the back of Friday’s fantastic jobs report and the 20-year high in the quarterly employment cost index the week before, this doesn’t bode well for a Fed intent on being patient on raising interest rates.

The central bank has repeatedly stated its belief that inflation is transitory. It may have to amend this language soon as it’s neither fading fast nor remaining remotely close to target, which makes the central bank’s argument harder for investors to believe.

Markets aren’t waiting for guidance. Today’s data may have been the final straw and they’re pricing in more rate hikes next year. The dollar has broken higher, pushing EURUSD to its lowest level since July last year.

The next test for the pair falls around 1.14, where the bottom of the channel coincides with prior support and resistance. Below here 1.12 will be a major support level.

If the pair corrects, 1.15-1.1550 is the obvious first test with it having been such a key level of support this past month.

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Craig Erlam

Craig Erlam

Senior Market Analyst, UK & EMEA at OANDA
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