Dollar Struggles for Power

Amid Increased Volatility and Unclear Direction

Throughout the past week, there was a burst of volatility yet the direction remained uncertain as the US Dollar struggled against the Euro and the rest of the major counterparts. Fed’s Meeting Minutes released last Wednesday showed no clear intention to taper bond purchases and Fed Chairman Powell commented that it may be too early for the central bank to tweak monetary policy.

The EUR/USD is showing a tightening range very close to 1.2200 and thus far, all moves to one side are immediately reversed but this type of behaviour is likely to generate a breakout sooner rather than later. However, the fundamental scene is lackluster as no major releases are scheduled for the week ahead, which could mean that the ranging price action will continue throughout the week.

Key Events for the Week Ahead

German and French banks will be closed today in observance of Whit Monday. Also, on the US Dollar side, there will be no notable events, thus volatility will be most likely low.

Tuesday at 2:00 pm GMT the Conference Board Inc. will release the Consumer Confidence report, which is a survey of about 3,000 U.S. households that tries to gauge the respondent’s overall opinion on the economic situation. The forecast is 119.4 and usually, higher numbers show optimism and are indicative of an increase in consumer spending, which in turn leads to a stronger US Dollar.

Thursday, May 27 at 12:30 pm GMT the U.S. Preliminary Gross Domestic Product will be released, showing the change in the total value of goods and services produced by the economy. The expected change is 6.4% but this is the second release in a series of three (Advance, Preliminary, and Final) and it tends to have a lower impact compared to the Advance version.

Chart Analysis – EUR/USD

Currently trading right on 1.2200, the pair has been traveling in a tightening range that usually leads to breakouts. The main level to watch is of course the resistance at 1.2220, which played an important role throughout the past week and is likely to remain important for this week’s price action as well.

Given the tight range and the imminent breakout, we are looking at two probable scenarios: a bullish breakout that may extend into the 1.2350 zone, or a rejection at the current resistance, which may find support at the 50 days Moving Average.

Because last week has been back and forth, with alternating candles and no clear direction, traders should be on their toes and wait for confirmation of the breakout before committing to either side.