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The EUR/USD exchange rate has risen for four days in succession to achieve levels around 1.1864 at the time of publication on Thursday. Analyst Richard Perry of Hantec Markets says he is still looking for the move higher to be confirmed by the market's technical setup.
The reaction to a breakout is always key.
EUR/USD has spent the past few sessions building higher and closed decisively above near term resistance at 1.1830 yesterday.
However, can this breakout now be confirmed so that the bulls can look confidently towards the next resistance 1.1900/1.1915 and perhaps even the key multi-year high of 1.2010 again?
The early reaction today is to pullback.
Reaction around breakout support will determine whether this move is to be trusted.
Support around 1.1815/1.1830 needs to hold today.
If the bulls can respond by buying into this pullback then it will be a strong indication that the move is accepted and upside resistance will be targeted.
Below 1.1800 loses the bullish intent, whilst back under 1.1760 and the near term outlook turns corrective again. Hourly indicators this morning show that this early pullback is now into an area which should be a buying opportunity if yesterday’s breakout is to be trusted.
After weeks of uncertainty, suddenly there seems to be traction in two major macro factors, or at least this is what market reaction would suggest.
With Nancy Pelosi’s self-imposed 48 hour deadline, not really a deadline at all, the Democrats and the White House are seemingly close to agreement on fiscal stimulus.
The White House is apparently willing to offer $1.9 trillion, closer to the Democrats’ $2.2 trillion, but the talks continue over whether the two sides can actually sign something. The question is whether anything can be done before the election.
Although logistically, this is looking increasingly unlikely, no matter, the market is taking a view that this is a done deal nonetheless.
Subsequently the safe haven dollar has come under significant selling pressure and the market seems to be taking a view now.
On the other side of the Atlantic, the UK and EU have seemingly made enough progress towards their own agreement on a post-Brexit trade deal.
Talks will intensify now and will take place every day for the potential to have an agreement in place by mid-November.
Sterling has spiked sharply higher on this and unless there is anything to suggest talks breaking down, it should now be underpinned for the coming weeks.
However, despite all this, there are question marks in the market, reflected by the fact that equities are not sharply higher. In fact the one key indicator of risk appetite is under pressure.
Wall Street closed lower yesterday and futures are lower again today. Oil is also under pressure. This is a significant disconnect with yesterday’s market moves.
Watch to see if bond yields begin to unwind again, something which would play into corrective pressure on equities.
There is a bit of a US focus to the economic calendar today. The Weekly Jobless Claims at 1330BST are expected to improve to 860,000 (down from last week’s unexpectedly high 898,000). US Existing Home Sales at 1500BST are expected to increase by +5% to 6.30m in September (from 6.00m in August). The Eurozone Consumer Confidence is at 1500BST and is expected to deteriorate in October to -15.0 (from -13.9 in September).
There are a couple of Bank of England speakers this morning to watch for. The BoE’s Chief Economist Andy Haldane speaks at 0930BST, with Haldane often seen as a controversial speaker. Then at 1025BST BoE Governor Andrew Bailey also speaks, where any comments about negative rates are sure to be pounced upon.