EUR/USD Breaks Lower On A Stronger Dollar

The greenback outperformed all of its major counterparts in European trading today despite a weaker than expected US data release. EUR/USD declined about half a percent as of the European close and is seen breaking below important support.

The Bureau of Labor Statistics reported a rise of 0.2% in the producer price index for August which was below the consensus for a gain of 0.3% and follows a decline of 0.1% in the prior reading. EUR/USD initially spike higher on the release but quickly reversed lower in a momentum driven decline which took the pair into negative territory for the day.

EUR/USD fell about five points short of testing important resistance at the psychological 1.2000 handle prior to reversing lower and has erased most of last week’s gain as a result of today’s decline. A technical break points to further downside potential as a rising trendline that originates from the July 5th low failed to hold buyers today.

A horizontal level at 1.1886 marks prior resistance from early August and has held the decline near the European close. The level remains the first level of support. Further support is found at 1.1824 which is prior resistance that held the pair lower on several attempts in August prior to an eventual upside break.

Resistance for the pair is seen at 1.1922 which was prior resistance in late August and early September.

Similar to EUR/USD, the US dollar index (DXY) has extended gains today to wipe most of last week’s decline. The index has made a sustained break above a horizontal level at 91.92, the 2016 spike low which was an obstacle yesterday.

The Bureau of Labor Statistics will release CPI figures on Thursday. The data is likely to be the most important for the dollar this week and is expected to trigger a volatile reaction. CPI has fallen short of expectations in the past five consecutive readings, however, analysts are optimistically expecting a rise of 0.3% following a gain of 0.1% in the prior month.

EUR/USD 4-Hour Chart

EURUSD 4H Sept 13

Jignesh is an analyst and trader, specializing in currencies and commodities. He utilizes a macro view as well as a proprietary method of pattern recognition that is based on the principles of Elliott wave. His focus is to assess strength in trends, and perceiving high potential turning points in the markets. He brings over 4 years of experience in his current role.