EUR/USD Consolidates Around the 1.09 Handle as the Dollar Index Remains Vulnerable

EUR/USD continued its advance from yesterday holding above the 1.09 handle following the European open. The Euro gained steam against the greenback yesterday as the knock-on effects from the Bank of Canada rate decision trickled through the market.

The Bank of Canada rate decision seems to have spurred a return of risk on sentiment as markets hope other central banks will follow suit. The BoC announced a pause to rate hikes in order to gauge the effects of recent increases on the Canadian economy. Given that the BoC was the first major central bank to hike rates market participants seem to view yesterdays announcement as a sign that the Federal Reserve and the ECB may follow suit. ECB policymakers however remain hawkish on the rate hike front as evidenced by comments made yesterday.

ECB Policymakers Makhlouf, Nagel and Vasle all remained rather hawkish in comments made yesterday as they agreed that further rate hikes were needed while cautioning that the inflation fight may not be over.

We do have some data releases from the US later today, the main one being the GDP growth data. Market participants will be keeping a close watch as the dollar index searches for some clarity.

The Dollar Index (DXY) is in need of a catalyst to provide some clear direction at the moment. The index has been in a range for the past 9 days with price action similar to that of the holiday season. We are hovering near the range low at present with todays GDP out of the US likely to provide a much-needed catalyst for a breakout.

From a technical perspective, price action remains messy on EUR/USD as we remain within the ascending channel. A breakout of the channel appears unlikely, yet horizontal resistance rests around the 1.0940 area.

The 100 and 200-day MAs are about to cross in a further nod to the upside trend in play at present. The only concern for bulls at this stage is that both the daily and weekly timeframe remain in overbought territory and might be worth keeping in mind.

IG Client Sentiment Data (IGCS) shows that retail traders are currently SHORT on EUR/USD with 66% of traders currently holding short positions. At DailyFX we typically take a contrarian view to crowd sentiment, and the fact that traders are SHORT suggests EUR/USD prices may continue to rise.