EUR/USD Reverses Early Gains on Dollar Strength

EUR/USD had been higher earlier in today’s trading, but has since reversed to the downside as the dollar has rallied. EUR/USD is currently trading at 1.0565, down 0.78%.

The dollar has reacted positively to a round of strong US economic data. The payroll services provider ADP reported 216,000 new jobs were added in the private sector during the month of November, the strongest addition since June. The data was much higher than the downwardly revised 119k (revised from 147k) reported in October and also well above the 165k analysts were expecting, according to a Thomson Reuters survey.

In addition, the November Chicago PMI index increased sharply to 57.6 from 50.6 the previous month. This was well above consensus expectations of an increase to 52.2 and the strongest reading since January 2015.

Also in today’s news, the October Personal Consumption Expenditure (PCE) price index increased 0.2%, the same increase recorded in September and August, with the annual increase strengthening to 1.4% from 1.2% previously. Excluding food and energy, there was a 0.1% increase in prices with the annual increase remaining at 1.7% for the third successive month.

And, US pending home sales rose 0.1% in October following a revised 1.4% gain the previous month, which was originally reported as a gain of 1.5%. The increase was slightly lower than expected with the annual increase at 1.8%.

Oil is also sharply higher, as OPEC agreed to cut output by more than 1 million barrels a day. The contract for January delivery on the New York Mercantile Exchange is currently up more than 7%.

The dollar has reacted to today’s events with a move back to with reach of its recent rally highs, while EUR/USD is now back within reach of the low established last week at 1.05183, which 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.

Given the broader bullish trend in the dollar and expectations for a rate hike and rising inflation in the US, the probabilities have favored an eventual break to the downside of the current consolidation phase, rather than ongoing strength in EUR/USD. At present, fed funds are pricing in a 98.6% probability of an interest rate increase at the December FOMC meeting.

EUR/USD Daily/Monthly Charts


Tracy L. Morganthall, CMT, has been a Technical Market Analyst for more than 20 years. She has experience analyzing and producing reports on equities, both domestic and international markets, as well as Forex and commodities. She attended Trenton State College in Trenton, New Jersey, earning a Bachelor's in Finance.