Spark Global Limited reports:
The dollar has been strong over the past few weeks and that, combined with the general weakness we have seen in the euro, has led to an accelerated sell-off in EURUSD.
While there has been a backlash against interest rate talk in recent weeks, rising inflation, a strong consumer and a strengthening Labour market have pushed the Fed into a corner. But Mr Powell’s renomination was the straw that broke the camel’s back — defeating Lael Brainard, who was seen as more dovish — and markets have now priced in several rate rises starting in June next year.
While that has pushed the dollar higher, the question now is how much further can it rise? Is it ready to be corrected? Has the sell-off become oversold?
Momentum indicators clearly show this. With prices approaching 1.12, the stochastics on the daily chart remain in the oversold zone, while on the 4-hour chart we can see a clear divergence with the MACD making higher lows as prices continue to fall.
This does not mean that we have reached a bottom, but as we approach key support levels, it may indicate that the trend is weakening. If so, a turn higher could bring attention back to 1.13, near-term support and resistance, and then 1.1375, late last week’s high, in line with the downtrend channel bottom and the 55-89 cycle SMA band on the 4-hour chart.