EUR/USD - Breakout Goes 'Boom,' Now What?It took a little while but what we've just seen in EUR/USD is a great example of a pent-up breakout. The 1.0500 level was tough, with some additional resistance at the Fibonacci levels at 1.0523/1.0533, but once bulls were able to clear that, they had full control and prices have run quickly to the upside.
There's another component here, and something I'll follow up with in a later post, but there's been a massive movement-lower in the US Dollar and that's helping to fuel the move in EUR/USD.
Tomorrow the European Central Bank is widely-expected to cut rates again, making the fundamental argument behind today's move even more of a challenge. But, the reality is ever since Monday the US Dollar has been on slippery ground as there's now worry and concern of recessionary potential in the U.S. economy. The Federal Reserve Bank of Atlanta's GDP Now is suggesting a -2.8% contraction in GDP for Q1, and this follows the dynamics in the yield curve from last year, when the 10-year/3-month Treasury spread remained inverted for much of 2024, only normalizing in Q4 as longer-term yields lifted.
There's been a fast re-pricing of rate cuts into the end of the year, further suggesting worry about the U.S. economy and that's a large driver of this move in EUR/USD, as the pair has broken out to the upside even with the ECB readying to cut rates again tomorrow.
At this point, RSI on the daily is moving into overbought territory and given the size of the breakout, this can be difficult to chase. There could, however, be pullback potential, especially if we hear a dovish outlay at ECB tomorrow. The 1.0611 area is of interest for higher-low support potential, as is the 1.0500/1.0523-1.0533 zones. - js
