EUR/USD failed a rally attempt in yesterday’s trading, as the pair advanced to 1.06855 for a high, the highest level since November 17th, but failed to sustain the gain and eventually dropped into negative territory for the day. In today’s trading, the pair is marginally lower relative to the North American close, holding near the 1.0605 level.
The pair is off the lows of the session following the release of November Eurozone Consumer Confidence, which was unchanged from the flash reading at -6.1 and an improvement from the -8.0 reading in October.
Later today, German CPI for November will be released. The annual inflation rate further picked up in October, hitting a two-year high of 0.8%. Economists expect a further move higher to 0.9% in November. Also in today’s trading the second estimate of US Q3 GDP will be released. Economists expect the figure to be revised up to 3.0% from the first reading of 2.9%. Also in the US today, November consumer confidence is on the calendar. This month, expectations are for a reading of 100, up from 98.6 in October.
Yesterday’s failed rally attempt in EUR/USD in the presence of a persistent, extreme oversold condition is a sign of underlying weakness that suggests the risk of a return to the low established in last week’s trading. That low stands at the 1.05183 level and represents a test of key support at the December 2015 corrective bottom at 1.05237 as well as the major corrective bottom established in March 2015 at the 1.04590 level.
A drop below the key zone of support would confirm a breakdown from a multi-month trading range, as can be seen on the monthly chart, calling for further losses in EUR/USD on a longer term basis.
On such a breakdown, the next target would become the psychologically important 1.0000 level, while the next level of chart-based support does not come into play until 0.96100, which defines the low established in September 2002.
Given the ongoing strength in the dollar and expectations for a rate hike and rising inflation in the US, corrections will likely remain short-lived, thereby keeping a lid on further rebound attempts in EUR/USD.
With yesterday’s failed rally attempt, new first resistance stands at yesterday’s intraday high at 1.06855, which represents a failed test of the November 22nd intraday high at 1.0660.