Euro-Dollar Pullback Seen Limited
- Written by: Gary Howes
Image © European Central Bank
The euro’s pullback against the dollar looks corrective rather than trend-changing, with the single currency finding renewed demand after slipping to an intraday low.
EUR/USD was trading around 1.1940 on Friday after earlier touching 1.1895, a level that has acted as interim support over the past three sessions.
The near-term rebound reinforces the view that buyers remain active around this area, limiting downside momentum despite a firmer tone in the dollar.
“EUR/USD continues to attract buyers around the 1.188-1.1900 area, despite the more positive mood on USD,” says Francesco Pesole, FX Strategist at ING Bank.
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“A break lower appears entirely USD-dependent anyway, and some eurozone data activity today should be secondary,” says Pesole.
Attention in markets has instead turned to the United States, where Kevin Warsh is set to be unveiled as the next Chair of the Federal Reserve.
Warsh is widely seen as the most market-friendly candidate for the role, a perception that has provided near-term support to the dollar.
“The dollar has been waiting for a catalyst for a recovery, and the news that Kevin Warsh is likely to be announced as the new Federal Reserve Chair nominee today offers exactly that,” says Pesole.
Even so, the dollar’s advance has so far been relatively contained when set against the scale of the selloff seen earlier in the week.
As a result, the broader technical setup in EUR/USD is still viewed as constructive, with the pair holding above recent support levels.
Current weakness is therefore seen as corrective and consolidative, rather than a signal that a meaningful peak has already been reached.
"Currently, the EUR/USD rally is stretched, with the pair trading far above the peak of the 20-week Bollinger Bands at a time when it is being undermined by the changing outlook for interest rates. The target for a minor reversal is 1.1622, and the pair could settle within 1.15–1.20 during a consolidation phase," says Jeremy Boulton, a Reuters market analyst.
