The US Dollar wasn’t the only currency on the move on Monday

As my colleague Matt Weller wrote about earlier, the US Dollar crushed it on the first trading day of the new year. The DXY moved from a low of 95.65 (just above the 50 Day Moving Average at 95.57) to a high of 96.32! The index moved back inside a symmetrical triangle, posting a false breakdown near the 50% retracement from the highs of March 2020 to the lows of January 2021. With the aggressive move higher in the DXY, comes a similar, but opposite move in EUR/USD, as the pair fell over 100 pips and formed a bearish engulfing candle!

Source: Tradingview, Stone X

Trade EUR/USD now: Login or Open a new account!

• Open an account in the UK
• Open an account in Australia
• Open an account in Singapore

The Euro makes up 58% of the DXY, so it makes sense that a solid move higher in the DXY would have an inverse affect on the Euro. But its not only technical. With the Fed moving forward the timeframe for the end of its bond purchasing program by 3 months to March, the Fed will be ending while the ECB is extending. Although the ECB will be ending its PEPP purchase program, it will still be purchasing bonds through its restructured APP program until the committee deems its feasible to stop. This is now a case of a hawkish Fed vs a dovish ECB.

Central Banks: Liftoff in Focus?

On a 240-minute timeframe, after reaching a low on November 24^th, 2021 near 1.1182, EUR/USD bounced to the 50% retracement level from the highs of November 9^th, 2021 to the lows on November 24^th, 2021, near 1.1383. The pair has since been creating higher lows and lower highs, forming a symmetrical triangle. On Friday, EUR/USD posted a false breakout and tested the prior resistance November 24^th highs. However, with the strong move in the US Dollar, EUR/USD pulled back into the triangle and tested the lows from December 29^th, near 1.1274. Resistance is now at a confluence of Monday’s highs near 1.1386 and the previously mentioned 50% retracement level at 1.1395. The 61.8% Fibonacci retracement level from the same time frame above there is at 1.1446 and then the top downward sloping trendline of the long-term channel near 1.1465. If EUR/USD breaks below 1.1274, the bottom trendline of the triangle is very close at 1.1260. Below there, price can fall all the way to the lows of November 24^th, 2021 at 1.1182, then the bottom downward sloping trendline of the channel near 1.1140.

Source: Tradingview, Stone X

Learn more about forex trading opportunities.

From time to time, StoneX Financial Pty Ltd (“we”, “our”) website may contain links to other sites and/or resources provided by third parties. These links and/or resources are provided for your information only and we have no control over the contents of those materials, and in no way endorse their content. Any analysis, opinion, commentary or research-based material on our website is for information and educational purposes only and is not, in any circumstances, intended to be an offer, recommendation or solicitation to buy or sell. You should always seek independent advice as to your suitability to speculate in any related markets and your ability to assume the associated risks, if you are at all unsure. No representation or warranty is made, express or implied, that the materials on our website are complete or accurate. We are not under any obligation to update any such material.

As such, we (and/or our associated companies) will not be responsible or liable for any loss or damage incurred by you or any third party arising out of, or in connection with, any use of the information on our website (other than with regards to any duty or liability that we are unable to limit or exclude by law or under the applicable regulatory system) and any such liability is hereby expressly disclaimed.

City Index is a trading name of StoneX Financial Pty Ltd.

The material provided herein is general in nature and does not take into account your objectives, financial situation or needs.

While every care has been taken in preparing this material, we do not provide any representation or warranty (express or implied) with respect to its completeness or accuracy. This is not an invitation or an offer to invest nor is it a recommendation to buy or sell investments.

StoneX recommends you to seek independent financial and legal advice before making any financial investment decision. Trading CFDs and FX on margin carries a higher level of risk, and may not be suitable for all investors. The possibility exists that you could lose more than your initial investment further CFD investors do not own or have any rights to the underlying assets.

It is important you consider our Financial Services Guide and Product Disclosure Statement (PDS) available at www.cityindex.com/en-au/terms-and-policies/, before deciding to acquire or hold our products. As a part of our market risk management, we may take the opposite side of your trade. Our Target Market Determination (TMD) is also available at www.cityindex.com/en-au/terms-and-policies/.

StoneX Financial Pty Ltd, Suite 28.01, 264 George Street, Sydney, NSW 2000 (ACN 141 774 727, AFSL 345646) is the CFD issuer and our products are traded off exchange.