EUR/USD falls from 1.1460 levels to 1.1430
The pair tested the highs yesterday close to 1.1470 earlier before the announcement on the recovery fund deal hit the wires and dragged the euro lower on the day.
The market reaction is pretty much a ‘buy the rumour, sell the fact’ play considering how much optimism has been flowing into the single currency over the past few weeks.
Looking at the near-term chart though, buyers are still in control as price action is keeping above the 100-hour MA (red line) @ 1.1420.
That will be a key level to watch amid this ‘sell the fact’ action as the 100-hour MA was also where buyers leaned on for support in trading yesterday.
Further support is then seen closer to 1.1400-05 before sellers may start looking towards the 200-hour MA (blue line) @ 1.1376 on a break under the figure level.
In the bigger picture though:
The euro is still looking perky but the recent gains to move above 1.1400 was all largely to do with the anticipation of the result of this meeting. Add to the fact that long positions in the euro are looking stretched, there’s good reason to expect a pause in the momentum.
However, in the longer-term, the recovery fund agreement bodes well for the economic prospects of the euro area and that will be a tailwind for the currency down the road.
That said, it will take time for that to play out. For now, the focus is all about the reaction to the announcement and the positioning flows leading up to it.
A drop below 1.1400 could see EUR/USD consolidate around 1.1200 to 1.1300 levels again, but that is also highly dependent on the dollar side of the equation now.
The euro side of the equation has basically been ‘settled’ and now we have to see how the risk mood affects price action to get more of a clue on where we will be trading next.
The key near-term levels highlighted above will be ones to watch as the ‘sell the fact’ play continues, but any further downside momentum depends on the dollar and risk.
A similar narrative can be applied to any upside momentum, but key resistance at 1.1495-00 will be ones to watch in case we see an extension higher in the sessions ahead.