Demand for the US Dollar surged during today's European session, although there does not seem to be any particular catalyst. In any case, this led to a EUR/USD slump, which hit the lowest level since December 2002, a move that we had been expecting for a while now.
This opens the door to 1.0200, although sustained weakness below this level that would expose it to 1.0072, may not be that easy from a technical prospective.
The Relative Strength Index moves to oversold levels and this could contain the fall and potentially give EUR/USD a chance to rebound, but the move is still evolving and it is risky to talk about that now.
In any case, the area from around 1.0500 and above looks unfriendly, as the EMA200 and the daily Ichimoku Cloud provide a strong resistance area.
The monetary policy differential has been the main source of USD Strength this year, but the Fed's tightening cycle is front-loaded and its hawkishness could be approaching a peak. The ECB on the other hand is late to the rate-hike cycle, expecting lift-off this month. So it remains to be seen how this theme will play out.
Compared to the Trump Presidency, under which the strong Dollar policy was not a given, the Biden administration is probably happy with it. This makes imports cheaper and helps against surging inflation which has created a political headache.
Caution is needed since volatility is high, while US traders were out on Monday and it will be interesting to see in what mood they will return and how this will affect the pair.
Senior Market Specialist
Nikos Tzabouras is a graduate of the Department of International & European Economic Studies at the Athens University of Economics and Business. He has a long time presence at FXCM, as he joined the company in 2011. He has served from multiple positions, but specializes in financial market analysis and commentary.
With his educational background in international relations, he emphasizes not only on Technical Analysis but also in Fundamental Analysis and Geopolitics – which have been having increasing impact on financial markets. He has longtime experience in market analysis and as a host of educational trading courses via online and in-person sessions and conferences.