EURUSD Hits New 9-Month High But Bulls May Be Out of Puff.

EURUSD Hits New 9-Month High But Bulls May Be Out of Puff
The EURUSD hit a fresh nine-month high against the dollar on Monday as more hawkish comments from European Central Bank officials rebuffed expectations of a more restrained Federal Reserve. ECB member Klaas Knot said interest rates would rise by 50 basis points in February and March, which could boost the single currency. The euro also gained against the yen, which surged following news that the Bank of Japan was examining the side effects of its monetary easing.

The yen climbed to its highest in six months after the Yomiuri newspaper reported that the Bank of Japan was considering taking further steps to address the impact of its bond-buying stimulus. The yen is up 1.7% against the greenback in the past seven trading days, and has recovered a large portion of its losses since late December.

Investors were cheering this week’s US employment data as it came in better than expected. The economy added 372’000 new nonfarm jobs in January, compared to analysts’ estimates of a 100’000 decline. The unemployment rate stayed near 3.6%, but average earnings were lower than expected.

However, US inflation fell for the sixth month in a row. This has led some to believe that the Fed is slowing its rate hikes, as it will need time to ease back before a recession can start.

This week is shaping up to be a busy one for global markets, with an important meeting by the ECB on Thursday followed by a number of important US data releases. With this backdrop, investors will be on the lookout for any hints that the Fed might be ready to pull back on its rate hiking cycle in the near future, or any indications from the European Central Bank that it is prepared to cut interest rates.

EURUSD is on a strong move higher today, and IG sentiment indicators show that bulls are on the verge of making further gains. The pair has bounced from last week’s lows and is now aiming for a strong retracement level at 1.05528, where significant support can be found. The pair may consolidate there until it reaches a key retracement level at 1.0800 where the next target should be the first Fibonacci retracement point from September’s lows.

EURUSD is also on the verge of breaking out of a long-term trading range which dates back to April and will be critical in the near term for any further progress. This is a good sign of progress for the pair and the market, especially given that the odds are favoring the bulls based on technical indicators like the exponential moving averages (EMAs).