More about the dollar this week
The EURUSD rallied to the highest level since July 10th this week - ending just short of the July 10 high price at 1.1215 (high reached 1.12125 on Wednesday). In the process, the price extended above the 100 day MA (currently at the 1.1039 level) . It also moved above a downward sloping trend line connecting most recent highs (from June 29). The catalyst? Thoughts that the Fed is less inclined to liftoff as a result of China's move to devalue.
The correction off the Wednesday high, stalled just ahead of the 100 hour MA (blue line in the chart below. That level comes in at 1.1099 (call it 1.1100). The price moved above the 100 hour MA on August 7 (US Unemployment day) and has not been below it since that day.
Going into the new trading week, there remains reasons to be bullish and reasons to be bearish technically and fundamentally.
Fundamentally, the global economy continues to spin round and round. China was the latest shoe to drop as they now want to weaken their currency and make their economy more competitive. That makes the Fed decision in September that much more difficult. Will the Fed be inclined to ease with oil prices much lower, commodities lower and now a stronger dollar against the Yuan making China imports cheaper. Yes employment stats showed trend growth in jobs, but is the Fed really think inflationary pressures are rising and going to move toward 2% target? The market will continue to wrestle with that. What impact does China have on the EU? The German Dax was down -4.4% this week and has given back 50% of it's gains. If you are looking for consumer confidence to remain supportive, that is not helpful.
Technically, traders will likely be focused on a couple 100 bar MAs. The first is the 100 hour MA (blue line in the hourly chart above). That market price on Friday's close was pretty much right on that MA at the 1.1100 level. Below that is the 100 day MA. That level currently comes in at 1.1039 (rises by a pip or two a day). The 50% of the move up from the August low comes in at 1.1030. So that area is key. Go down and test and hold that "line in the sand" than the market keeps it's bullishness. Move below and traders may just turn the beat further around and head back toward the 1.0800 area.
Can the market rally? After all, there are still calls out there for the USD to take charge again and the EURUSD pair to move back lower toward the lows from the year and even parity.
The short answer is "Yes, it can".
Don't underestimate the power of the technicals. Holding the 100 hour MA, getting above the July highs and the traders will start to think about testing the 200 day MA (green line on the daily chart). The last time the market price traded above the 200 day MA was way back on July 1st, 2014 (yes 2014). It has been a longgggg time. Then again it has been 6 months of consolidation for the EURUSD too. That was need to get close to having this test of the key MA. The 200 day MA comes in at 1.13697. Sometimes, the market gets pulled towards a key technical level "just because it is there". Getting the 200 day MA close enough may lead to a gravitational pull upwards.
I wish I knew which path the pair will take (don't we all). However, what we can do, is go with the price action against the 100 bar MAs (both hourly and daily). Also be sure to continue to understand that there may continue to be choppy trading conditions. We remain in illiquid summer time trading.
