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EURUSD: price action retraces to December range

The EURUSD pair logged losses on Tuesday, January 18, down 0.70% to 1.1326. Selling intensified on the back of widening UST yields, as well as falling futures on US stock indices. During the North American session, the pullback accelerated, with S&P 500 shedding 1.51% to 35,368.47 and the Nasdaq plunging 2.6% to 14,506.90. All risk-sensitive assets came under pressure.

Today’s macro agenda (GMT+3)

  • 12:00 Eurozone: current account (November)
  • 12:30 UK: house price index (November)
  • 16:30 Canada: CPI (December), wholesale sales (November)
  • 16:30 US: housing starts and building permits (December)
  • 17:15 US: BoE Governor Andrew Bailey speech

Current outlook

By the time of writing, the euro was trading at 1.1333, while major currencies were moving in positive territory. The DXY index reverted to a correction after yesterday's uptrend.

A confluence of factors related to the upcoming FOMC meeting put pressure on US equities, pushed up UST yields and exerted a significant impact on the US dollar. This month's FOMC meeting is scheduled to begin a week later on January 25 and end the following day.

Market participants expect the Fed to launch an aggressive rate hike cycle to rein in galloping inflation, which is currently running at 7% YoY. The market is pricing in three or four rate hikes this year.

Technical analysis

Buyers have defended the 1.1385 support level for 43 hours. After breaking out to the downside, the decline picked up to 1.1314. Price action retraced to the December range of 1.1225-1.1385. Selling ended at the 135-degree angle of the Gann fan from the top of 1.1483.

The trendline low of 1.1272 crosses through 1.1305. The decline in US index futures continued during APEC trading. The 10-year UST yield soared to two-year highs. In our view, price action has not reached the level required for a rebound. Given that the pullback halted at the 135-degree angle, a correction could break out without testing the 1.1300 level. The 55-day SMA and trendline lie at 1.1380. They are the target zone for buyers. Sellers will tap into all the negative factors to push the price back down to 1.1225 as quickly as possible.

 

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