The euro edged lower by 0.18 percent to 1.22147 against the U.S. dollar, despite optimism that Germany’s Angela Merkel has made a breakthrough toward her fourth term after months of stalement boosted economic outlook, while the dollar recovered from earlier lows as the federal government shutdown continued.
Heading into last week, we were looking for momentum in the euro to stall as it digests gains following the breakout to 3-yr highs. Looking to the days ahead more of the same could be store, but we may see price action on the weak-side until a further period of consolidation passes.
A fairly significant hurdle in the short-term could be found around a swing-low created during the 2014 sell-off. A little more back-and-filling in the current vicinity is seen as a positive as a continued time correction could do EUR/USD some good.
If there is a chance of pullback below last week’s low of 1.21640, barring strong momentum, it won’t be considered alarming for the long-side of the tape. But soon thereafter a retest of the prior breakout high just under 12100 may be in order.
Investors should be looking ahead on the ECB press conference in Frankfurt where the President Mario Draghi will announce the decision on monetary policy on Thursday, which is expecting a tightening tone will be given.
Figure 1: EURUSD Daily
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