EURUSD erased all last week's gains on broad US Dollar strength. Start of a bearish trend?

FUNDAMENTAL OVERVIEW

USD:

The US Dollar rebounded in the final part of last week with analysts pointing to the nomination of Kevin Warsh as the next Fed chair as the main catalyst. The reality is that the selloff in the greenback wasn’t backed by fundamentals in the first place. The greenback didn’t have strong reasons to appreciate, but there wasn’t a reason for such a strong selloff either.

The US data continues to improve, especially on the labour market side as the US Jobless Claims seem to suggest a re-acceleration in activity. February might be the month when the US Dollar comes back with a vengeance if we get another strong set of economic data.

The NFP report is certainly the main highlight of this week, but we will get many other top tier data that could give the greenback a boost. The market is pricing 55 bps of easing by year-end and those bets will be pared back in case the data strengthens. Conversely, if the data comes out softer than expected, then we could see the US Dollar coming back under pressure, although the momentum shouldn’t be as strong as the prior weeks.

EUR:

On the EUR side, the ECB members started to feel uneasy as EUR/USD crossed the 1.20 level last week. This is kind of a line in the sand as ECB’s Vice President de Guindos last year said that a rise above 1.20 would complicate things for them.

This week, we have the ECB policy decision where the central bank is expected to keep interest rates unchanged and reaffirm their neutral stance. The risk is that the ECB jawbones the euro more heavily although they don’t have a reason to do so yet given that the recent data has been stronger than expected.

EURUSD TECHNICAL ANALYSIS – DAILY TIMEFRAME

On the daily chart, we can see that EURUSD broke through the 1.20 level but eventually erased the gains as ECB policymakers jawboned the currency and the US data continued to improve. We have a key swing level near the 1.18 handle which could act as support. The buyers will likely step in there with a defined risk below the support to position for a rally into new highs. The sellers, on the other hand, will look for a break lower to increase the bearish bets into the 1.16 handle next.

EURUSD TECHNICAL ANALYSIS – 4 HOUR TIMEFRAME

On the 4 hour chart, we can see that we have a downward trendline defining the current bearish momentum. If we get a pullback, we can expect the sellers to lean on the trendline with a defined risk above it to keep pushing into new lows. The buyers, on the other hand, will look for a break higher to pile in for a rally into new cycle highs.

EURUSD TECHNICAL ANALYSIS – 1 HOUR TIMEFRAME

On the 1 hour chart, we can see more clearly the resistance zone around the 1.19 handle where we can find the downward trendline. That’s where we can expect the sellers to step in to keep pushing into new lows, while the buyers will look for a break higher to extend the gains into new highs. The red line define the average daily range for today.

UPCOMING CATALYSTS

Today we have the US ISM Manufacturing PMI. Tomorrow, we get the US Job Openings data. On Wednesday, we have the Eurozone Flash CPI, the US ADP and the US ISM Services PMI. On Thursday, we have the ECB policy decision and the US Jobless Claims figures. On Friday, we conclude the week with the US NFP report and the University of Michigan Consumer Sentiment data.