50% retracement 1.1764. Swing area between 1.1767 and 1.17748
The EURUSD is trading at a new seven-day high brain going back to September 22). The pair today based near a swing area at 1.1713-1.1718 and was able to extend above yesterday’s highs between 1.17508 and 1.1755. The sellers are taking a break in this area. A move back below the 1.1750 level may give some buyers some cause for pause (and give sellers against resistance some comfort). However, the range for the day is only a modest 54 pips vs. a 77 pip average trading range for the last month or so. So there is room to roam, if the buyers can stay in control.
The high has reached 1.1768 so far. That is above the 50% retracement of the move down from the September 10 high, and between swing areas between 1.17675 and 1.17748. Get above 1.1775, and it should open up the door for a move toward the 61.8% retracement at the nice round number of 1.1800.
I came across a piece on Bloomberg’s Market Live blog making a case for the Dollar Index to hit 90, before 100. Here is the rationale:
1. The recent Dollar strength has been fuelled by US election uncertainties.
2. The rising COVID-19 cases in Europe have been a key part of the EURUSD weakness. Technically the EURUSD is being pushed back down into a large downtrend from 2008.
3. Despite crowded eur longs and USD shorts being a bit cleaner there still remains election risks.
4. The sum conclusion is that once the election tensions fade then the EURUSD will be driven by the fact that the Fed’s stimulus is greater than the ECB’s. Therefore, DXY to move to 90 before 100.
Points 1 and 2 are really two sides of the same coin. EURUSD weakness = DXY strength and vice versa due to their tight negative correlation. US elections are close and tense. The ‘sell everything’ feel has definitely been here with heavy global stock selling.
Despite the Dollar’s sharp rally this week, Futures traders SOLD another $2.5 Billion – now the biggest Short Dollar position in 9 years. If this USD rally continues, a lot of traders look headed for an expensive lesson in risk management.
GBP/USD falls to 1.2680, its lowest level since 23 July
Some modest strength in the dollar is helping to push cable lower, but the pound is still unable to get off the floor for the most part and that is also contributing to the decline in the pair to fresh lows since 23 July now.
Of note, the pair is now breaching key support levels from the confluence of the key daily moving averages @ 1.2724-26 as well as the 61.8 retracement level @ 1.2722.
That is leading to the bias in the pair turning more bearish with the drop under 1.2700 now leaving the pair vulnerable to a potential drop towards 1.2500 next.
The trifecta of bearish factors are also continuing to intensify for the pound.