EURUSD Hitting Resistance After Dovish Fed Boost

EURUSD Moving Higher Ahead of Non-Farm Payroll Report

• US dollar outlook changing as further interest rate hikes are priced out of the market.

• 200-day moving average may slow the move higher in the short-term.

Q1 2019 Trading Forecasts including USD and EUR.

EURUSD Hits a Two-Week High on USD Weakne

Fed Chair Jerome Powell sent USD-bulls running for cover late Wednesday, arguing that the case for further US interest rate hikes had ‘weakened somewhat’ after he downgraded US economic activity to ‘solid’ from ‘strong’. Jerome Powell also revised his guidance on the balance sheet normalization plan, hinting that the balance sheet is now close to its optimum size, another mildly-dovish twist. Markets have now fully priced-out any further US interest rate hikes in 2019 and are now hinting at potential rate cuts in 2020, a complete U-turn from market pricing seen in mid-to-late 2018.

The technical outlook for the Euro is looking slightly more positive but further progress is being stalled by the 200-day moving average, currently sitting on top of EURUSD at 1.1518. This also coincides with a previous horizontal support level from mid-2018. The 1.1500 level has held as resistance recently – apart from a brief break at the start of the year– and a break and close above the January high at 1.1572 would open the way for further upside. The RSI indicator shows the pair moving towards overbought territory and is closing in on its highest level since September 2018. The upside move may be blown off-course on Friday with release of the latest US Labour Report at 13.30 GMT. Another strong NFP reading – December saw 312k new jobs created – could stiffen the dollars resolve and bring the 50% Fibonacci retracement level at 1.1448 back into play.

IG Client Sentiment currently gives us a bullish contrarian bias as retail data shows traders short EURUSD by a ratio of 1.07 to 1 (48.3%).

EURUSD Daily Price Chart (January 2018 – January 31, 2019)