Analysts at Rabobank explained that since the ECB has been providing unprecedented amount of liquidity from January last year when the QE was announced and with the Fed gradually normalising its monetary policy, the market has been strongly positioned for a retracement in EUR/USD.
Key Quotes:
Something, however, has changed in the market’s mentality over the past few weeks as concerns about China escalated and expectations regarding Fed’s tightening have been repriced.
Consequently, the bias (at least the short-term) has started shifting from “sell rallies” to “buy dips”.
This shift culminated in a bullish breakout from a triangle pattern and EUR/USD rallied to 1.1246 high last week. While January US non-farm payrolls triggered a modest correction, a sustained trade above the key support area formed around the 200-dma at 1.1054 would favour further gains in EUR/USD in the short- term.
It is also worth pointing out that further sell-off in European stocks should increase the odds that EUR/USD could appreciate towards the 1.15 level in the coming weeks.
A sharp pullback well below the key area at around the 200-dma at 1.1054 would cancel such a bullish scenario, but the market seems to be in “buy dips” mode.”
(Market News Provided by FXstreet)