EUR/USD: Sitting Below The Trend Line

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On Tuesday the 5th of December, trading on the euro/dollar pair closed down. I still can’t understand why the euro dropped from 1.1874 to 1.1801 against the dollar. At the time, US bond yields were trading down. This drop gathered pace during the US session. The US’s services PMI for November fell further than expected.

There are another two factors at play here that could have led investors to short the euro and buy dollars. The first is the US Congress’ approval of the tax reform bill. Secondly, the Senate’s banking committee has voted for Powell to chair the Federal Reserve.

Some believe that the market is undergoing a reversal in anticipation of Friday’s payrolls report. On Tuesday, trading on the euro/dollar closed at 1.1824.

Day’s news (GMT+3):

Fig 1. EURUSD hourly chart. Source: TradingView

My expectations of a rise for the euro on Tuesday did not come to pass. The euro bounced from the trend line and was then beaten back from the balance line by sellers. In the space of an hour the euro had returned to the balance line, and an hour later, broke through it.

Buyers tried to seize back control after the publication of a weak PPI report from ISM, but their efforts came to nothing. The drop intensified with the euro reaching 1.1801 as a breakout of the trend line is always a strong technical signal.

The rebound occurred at the 112th degree. At the time of writing, the euro is trading at 1.1841. There’s no forecast on the chart because I couldn’t determine which way the price will go today.

Now I’ll try to explain why it was so difficult to decide: