EUR/USD has traded within a 35 point range to start out the new week, on the back of a light economic calendar. Volatility is expected to pick up later in the week as the European Central Bank is scheduled to hold its monetary policy meeting on Thursday.
Eurozone CPI for June, reported in early European trading, was unchanged while the annual rate declined from 1.4% to 1.3%. The release was the final reading and caused little volatility in the exchange rate.
EUR/USD started the week out near resistance at 1.1473 and turned lower from the level in the Asian session. The horizontal level marks the highest daily close in the third quarter of 2015
The pair was firmly bid in the European session after testing support at 1.1440, which marks the July 7th high, and has erased early day losses.
Near the 1.1440 level, a major confluence is seen. A horizontal level at 1.1445 previously marked the highest weekly close since early 2015 as the pair made a marginal close above the level last week. A declining trendline that connects the 2015 high with the 2016 high is also within close proximity and the reaction this week from the area of confluence will be important for the near to medium-term trend.
The latest COT report revealed a build in the euro net long position which is now at a six-year high. The net long rose from 77,464 contracts to 83,788 contracts and unlike last week, the build was mostly attributed to a rise in long contracts. The extreme size of the net long puts the euro at risk but shows confidence among bulls, especially ahead of the ECB meeting.
EUR/USD posted a bearish shooting star candle on a 1-hour chart near 1.1473 resistance slightly ahead of the European close. The pattern suggested that some bulls may have gotten trapped on a fake breakout above resistance and hints of a correction in the near-term.
A range break in the pair stands to carry follow through. Downside support at 1.1400 will be important as a decline back below the level could encourage bears that are watching the confluence area seen on a daily and weekly chart.
The next level of resistance falls near 1.1500 because of the psychological importance of the level and as the upper line of a rising trend channel comes into play. The channel has encompassed price action since the end of June.
EUR/USD carries a bullish near-term bias as the rise on the back of Friday’s weak US CPI and retail sales report resulted in a break above a declining trendline from Wednesday’s high to signal a bullish continuation.