EUR/USD bounces on broad USD selling, profit-taking

• EUR/USD bounces on broad US Dollar selling after the Chinese PBoC decides to fix the Renminbi higher on Monday.
• Profit-taking after the deep declines at the end of last week could be another factor. 
• Comments from key central bankers could move the pair on Monday. 

EUR/USD is trading about a tenth of a percent higher at the start of the week, in the lower 1.0800s, possibly as a result of broad US Dollar (USD) selling after the People’s Bank of China (PBoC) fixed the Renminbi surprisingly higher on Monday morning, according to Bloomberg News. 

Although it is up on the day, the pair appears to be in a new short-term downtrend and is now firmly below the 200-day Simple Moving Average (SMA) at 1.0838, the last key MA obstructing further downside. 

EUR/USD bounces on profit-taking after sell-off

EUR/USD is bouncing on Monday due also perhaps to profit-taking. The pair suffered a substantial decline at the end of last week, following the release of Eurozone and US flash PMI data that highlighted US exceptionalism. 

The data suggested the US economy is still doing pretty well and the Federal Reserve (Fed) may be being too hasty in expecting to make three interest-rate cuts this year. If the Fed changes its mind and cuts rates more slowly, it will be positive for the US Dollar since higher rates tend to attract greater inflows of foreign capital. 

Despite Monday’s bounce, the Euro remains “fragile” to further weakness, according to analysts at ING, who think the surprise Swiss National Bank (SNB) decision to cut its interest rates on Thursday has stimulated “increased scrutiny of ECB communication,” for signs the European bank will follow suit. The ECB and SNB have a history of mimicking each other, although it is normally the SNB which follows the ECB, not the other way around. 

“Following last week's surprise cut from the Swiss National Bank, there has been increased scrutiny on ECB communication. This remains mixed, with one hawk on Friday still talking up the chances of an April rate cut. Notably, money markets still ascribe a very low probability to such an outcome and we doubt that changes much this week given the absence of key data,” said ING in a recent note. 

ING still sees a low probability of an early interest rate cut by the ECB, however, and volatility is likely to be minimalized by the lack of key data out for the Euro this week and the upcoming Easter holidays. 

As far as calendar events go, European Central Bank President Christine Lagarde is scheduled to speak at 10:00 GMT on Monday. 

The Federal Reserve Bank of Atlanta President Raphael Bostic is also scheduled to speak later in the day at 13:45 GMT, and is followed by the Federal Reserve member of the Board of Governors Lisa Cook at 14:30 GMT. 

On the data front, US New Home Sales and the Chicago Fed National Activity Index will be released on Monday.  

Technical Analysis: EUR/USD makes lower lows

EUR/USD seems now to be in a short-term downtrend after making lower lows on Friday, and since the “trend is your friend” this, on balance, favors bearish bets. 

Euro versus US Dollar: 4-hour chart

EUR/USD has fallen to the low of wave B of the three-wave Measured Move pattern that unfolded higher during February and early March. This is likely to be a key support level and may see some stabilization of the exchange rate after the past week’s heightened volatility. 

A decisive break below the B-wave lows at roughly 1.0795 would signal a continuation of the downtrend to the next target at 1.0750, possibly even the February lows at 1.0700. 

A decisive break is one characterized by a long red bearish candle that breaks cleanly through the level and closes near its low, or three down candles in a row that breach the level. 

Alternatively, a move above the 1.0950 level would bring into question the validity of the short-term downtrend.