EUR/USD sits on the edge as the dollar holds firmer to start the session

EUR/USD cracks below its 100-day moving average and trendline support

EUR/USD D1 02-03
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Price hits a session low of 1.2005 and is holding just above the 1.2000 level for now, but sellers are pushing the agenda as they are trying to keep a break below the 100-day moving average (red line) and trendline support in the region of 1.2031-41.

This is a relatively key test for the pair after a bit of consolidation above 1.2000 to start the year, and a break below the figure level will put the February lows in focus.

That is seen at 1.1952-58 and a break below that (after having seen the 100-day moving average give way) opens up a slippery slope for price momentum to extend.

The 200-day moving average (blue line) is only seen @ 1.1807 today.

There are a couple of things playing out here as the market theme has switched around rather quickly since the start of the year. Let’s explore:

Eurozone vaccine rollout has been slow, US outlook appears much better

This is one area slowly playing into the dollar’s favour and one that is keeping the euro pressured; as the US economy looks set for a stronger, faster rebound than Europe.

Treasury yields continue to trend higher

With the ECB stepping in with some verbal threats as of late, the Fed hasn’t quite done anything. Add to the fact that Biden’s stimulus plan is keeping on track, Treasuries are not out of the deep end just yet despite the rout last week.

The economic outlook is also part of the story here but in any case, that’s another tick in the box for the dollar over the euro if the Fed gives the green light.

But the Fed put remains in play

Despite all the tantrum without the taper, the Fed is reaffirming its commitment to lower rates for longer. However, if it allows yields to run higher, I don’t quite see this being as much as a relevant factor as policymakers may get bullied into a decision eventually.

That said, easy money is still at play and the Fed put may yet come back to bite at the market. But as the old adage goes, never fight the bond market.

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By Jonathan Prop

Jonathan Prop is an independent financial advisor. He has been working in finance for the last 20 years. After retiring early in his 40s, Jonathan decided to help others get to grip with financial markets, particularly his area of expertise - forex!

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