After a steady rally in early Asian trading, EUR/USD turned lower from trendline resistance at the European open to erase gains.
The pair faces strong overhead resistance as a trendline that connects the December spike high with early February highs capped gains on Friday and has once again come into play. The trendline is best viewed on a 4-hour chart and carries some confluence with resistance from the highest weekly close this year which comes in at 1.0784.
A drop in the exchange rate following the European close shows the pair breaking below a rising trendline that connects Friday’s lows with the low posted at this week’s open.
The recent rise in EUR/USD has been attributed to the Dutch election and last week’s Fed meeting. The Federal Reserve disappointed as a more aggressive pace of tightening was priced in which led to an extension higher in the pair.
Fed members will have the opportunity to readjust market expectations this week as several members are scheduled to speak.
Chicago Fed President Evans spoke at the New York Association of Business Economics today. He commented that fiscal policy measures anticipated from the Trump administration remained unclear and that he expects inflation to rise to 2% by the end of 2018 despite a strong dollar somewhat limiting upward price pressure. He further stated that the Federal Reserve is capable of providing further stimulus if needed.
Fed members Dudley, George and Mester are scheduled to speak on Tuesday.
The latest COT report indicated a notable drop in the euro net short position. There was a decline of $2.4 billion to bring the net short among non-commercials to $5.4 billion. The combination of the reduction in euro net short positioning and a build in the British pound net short shows the European currency is no longer the largest net short held among the majors. The data is accurate for the week ending March 14th which was one day before the Fed meeting. The broader dollar decline following the meeting has likely resulted in a further drop in net short euro positioning.
The first level of support in EUR/USD is seen at 1.0710. The level held price action higher last week during a consolidation that followed Wednesday’s Fed meeting and has been a respected level throughout the consolidation from early 2015. Stronger support for the pair falls at 1.0674 as it triggered a turn from a recovery in the middle of February. The level also falls within close proximity of a 61.8% Fibonacci level measured from February highs as well as the lower bound of a rising channel that has encompassed price action since March 8th. Upside resistance remains at the declining trendline.