EURUSD – An Uninspiring Breakout

Fundamental analysis of Forex market

Running out of steam?

What a week it’s been for the dollar. Since last week’s poor ADP we’ve had strong ISM data, hawkish Fed commentary and, finally, a knockout jobs report.

Suddenly, it feels that a tapering announcement is almost upon us and the data is pointing to good times ahead. What a time to be bullish on the dollar.

Which makes me wonder whether so much is now baked into expectations, could the dollar could be primed for a pull back? The longer-term outlook is very promising but corrections do happen along the way.

A look at the EURUSD chart makes me even more curious. The pair experienced a very modest correction recently, not even reaching the 38.2 fib in the process, at which point a data and Fed-infused dollar rally sent it tumbling again.

After breaking support, it wouldn’t be a surprise to see it experience another sizeable fall, triggering stops along the way to propel it lower.

But this didn’t happen. It made a new low then pulled back. The momentum indicators are hardly inspiring. Could it be that the rally in the greenback is a little exhausted and we may see a pause ahead of the Jackson Hole later this month, at which many are expecting a deluge of Fed warnings about impending tapering?

Perhaps I’m reading too much into this lacklustre breakout. There’s plenty of things that could launch the dollar once more – two Fed speakers today, CPI Wednesday, etc – but this very much looks like a red flag to me.