There was a bit of a wrestle after the US CPI report yesterday but eventually, the dollar once again reigned supreme. EUR/USD saw a break below the April low of 1.0601 and has now traded down to fresh lows for the year. As the greenback continues to run a rampage, it is starting to draw in a rather critical level for EUR/USD in the bigger picture:
As seen from the above, the pair has been sort of stuck within a range of 1.0500 to 1.1200 roughly since the start of 2023.
As such, there looks to be an inevitable pull towards the 1.0500 mark now as sellers have proven their mettle at each and every other test since the start of October trading. The most recent of course being the fall below the April low of 1.0601, as mentioned above.
Taking the technical backdrop above into consideration, it pretty much means we’re reaching a very, very critical juncture in gauging the post-election dollar momentum.
A firm break below 1.0500 is not only one to set off any further declines in EUR/USD. But the spillover potential means that it is going to spur even further gains in the dollar as we look towards year-end.
There is certainly strong arguments for that, as Adam pointed out here. But are traders going overboard in frontrunning the potential for the Trump trade and tariffs? That’s something to consider as well perhaps.
For now, the momentum trade is name of the game in FX. However, don’t ignore the implications set out by key technical boundaries such as the one in the chart above. That will be vital in determining the strength and resolve of the dollar momentum we’re seeing now.
This article was written by Justin Low at www.forexlive.com.
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