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EUR/USD consolidates daily gains below 1.19 as DXY steadies around 93

  • EUR/USD fails to hold above 1.19 as US dollar recovers.
  • The pair remains on track to close the second straight day higher.
  • Key inflation data from the U.S. came in line with market estimates.

After renewing its weekly low at 1.1808 in the early trading hours of the European session, the EUR/USD pair reversed course and surged to a daily high at 1.1930 before losing its bullish momentum. As of writing, the pair was trading at 1.1890, still up 0.4% on the day.

DXY continues to drive the pair's price action

The pair's drop on Thursday was caused by the US Dollar Index's rise to its highest level since November 22 at 93.46. However, the index struggled to extend its gains ahead of the macroeconomic data releases from the United States and allowed the pair go into a recovery mode. Even after today's data met the experts' expectations, the market reaction was non-existent. Later in the NA session, however, the DXY came under a heavy selling pressure and quickly broke below the 93 mark to refresh its daily low at 92.68. News of White House planning to replace Secretary of State Rex W. Tillerson with current CIA director Mike Pompeo in the next couple of weeks seemed to be the primary catalyst for that fall.

Following that sudden drop, the US Dollar Index started to retrace its losses and edged higher above the 93 mark in the US afternoon supported by the advancing US Treasury-bond yields. Nevertheless, the index is still down 0.25% at 93.02 at the moment. 

Commenting on today's price action, "it’s not entirely obvious what is driving this curious price action but our analysis suggests it must be “negative developments” on the US side that affect the currency more than US yields," Westpac analysts argued.

On Friday, Markit is going to release the PMI data for the manufacturing sector both in the euro area and the United States. Furthermore, FOMC members James Bullard, Robert Kaplan, and  Patrick Harker will be delivering speeches. However, with the December rate hike already priced in, their remarks are unlikely to trigger any sharp fluctuations. 

Technical outlook

Valeria Bednarik, Chief Analyst at FXStreet, writes, "in the 4s hour chart, the price is holding just a handful of pips above a bearish 20 SMA, while technical indicators turned south within positive territory, now nearing their mid-lines. The pair is midway of its weekly range, clearly showing the absence of a defined trend. Whereas above 1.1960 or below 1.1790 the outlook will be more defined, seems the market will wait for December Fed and ECB's monetary policy announcements before choosing a side."

According to the analyst, technical supports for the pair could be seen at 1.1860, 1.1820, and 1.1785 while resistances align at 1.1930, 1.1960, and 1.2000.

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