The eurodollar is due for a pullback. When the low inflation and poor economy is considered, the eurodollar is exactly where it is following the European Central Bank’s decision to cut the key benchmark rate by 25 bps. Theoretically, the rate cut did absolutely nothing to stop the euro from increasing. This is primarily due to the risk-on nature of the equity markets contradictory to current economic data, but this too is also due for a reality check.
Nevertheless, proper technicians should analyze both trend and countertrend opportunities in order to have a plan for both outcomes. The FOMC minutes and leaked information of a potential deposit rate cute sent price action through an ascending channel. Support was found (white dotted line) on a supporting trend line created on September 6. Price action since bounce off near 1.3400. Currently, the eurodollar is finding resistance from surpassing the former supporting trend line from the previous channel at 1.3558. Look for a pullback to 1.3524 to reevaluate. If 1.3524 is broken, price action will challenge 1.3500 and push into a demand zone in 1.3480. However, if price action does break 1.3558 then the eurodollar will reenter the channel and press on to 1.3600.
The Sterling has been rangebound over the last several months, but price action has been trending up since hitting support at 1.6065. Current action is capped by a small resistance level at 1.6239 with additional resistance at 1.6260.
If price action is rejected, then the GBPUSD will find support at 1.62 and than 1.6155. A break above 1.6260 could push Sterling to year-to-date highs of 1.6379, given that momentum continues.
The dollar index is up .06 percent in early trade. The dollar has been down following the FOMC and gave the euro and Sterling a reason to trade higher. Speculation of a December taper could give the dollar reason to hang on. Both currencies are over 150 pips higher in recent sessions without any retracement.