EUR/USD sent to 1.1280 S1 pivot support and bears look to break

• EUR/USD bull’s commitments waning at the 1.13 handle.  
• EUR/USD finds support at the 1.1280 S1 pivot although dollar retains bid bias, (US 10 years yield extends range to 2.7170%), with DXY testing psychological 97 handle again.

EUR/USD dropped to the S1 1.1280 support line following a sell-off from yesterday’s corrective highs at 1.1341. Bears are loading back up for an additional test following a dovish ECB and on bullish sound bites from the Sino/US trade talks and an agreement, in principle, between the Republican and Democrats over the wall. Today’s CPI data sealed the deal for the greenback and US yields.  

 Temporarily, the markets were diverted away from politics today with the January CPI report which held steady matching unchanged prices in December. The core printed a strong 0.2% m/m gain.

“Overall, base effects and dropping oil prices pulled annual headline inflation to a 19-month low of 1.6%, while core held steady at 2.2% y/y. The Fed remains patient, and today’s report should keep them on track for an additional hike or two this year,” analysts at TD Securities explained, adding, the FX market continues to stick to pre-existing ranges, with the USD a touch stronger the on data. Focus remains on geopolitics and risk appetite, though, given the scope for a US/China trade truce and discussions around Brexit.”

On the Brexit front, the latest is that PM May has given herself a bit more wiggle room committing to presenting another neutral motion in two weeks time after confirming that she needed “more time” to secure changes yesterday. Meanwhile, from the Fed, Fed Chair Powell declined to offer any surprises in comments yesterday although he said that “data at the national level show a strong economy” and officials “don’t feel the probability of recession is at all elevated.”  

Euro is faltering also from a change in stance from ECB

Elsewhere, the euro is faltering also from a change in stance from ECB members. We had Klaas Knot switching more dovish (who was previously seen as a hawk) in an interview with the FT. The tone of the interview suggested a more neutral stance, no longer urging exit in 2019 and instead adopting a “wait and see attitude”. Then, Weidmann, another hawk, also moved towards a more dovish stance when saying that the current economic weakness is “a bit more protracted” than previously thought.  

EUR/USD levels

Analysts at Commerzbank explained that EUR/USD has traded through BUT NOT CLOSED below 1.1265:

“These are the December lows. Provided that the market holds here we favour a recovery to the 1.1535 200 day ma and the 1.1623 mid October high and slightly longer term we target 1.1723, the 55 week ma. Yesterdays price action was nearly a key day reversal and we will reattempt long positions.”