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DXY reverts to correction, capping week-long rally

The EURUSD pair fell 0.43% to 1.1766 on Thursday, September 16. The single currency started losing ground during APAC trading. During the European session, sellers broke through the 1.18 handle, which kept price action in check for two days. The pound and euro declined amid risk aversion and a rally in the dollar ahead of the Fed’s upcoming meeting.

A decline in the euro to 1.1750 came as a surprise, as earlier weak inflation and industrial production data were released stateside. During the North American session, sellers retraced to lows after strong retail sales came out.

Retail sales rose 0.7% in August, well ahead of the median forecast that called for a 0.8% decline. Excluding autos, sales jumped 1.8% compared to expectations for a 0.2% increase. The data eased concerns about a sharp slowdown in economic growth.

Traders reacted by buying into the dollar on concerns that this positive data point would urge the Fed to taper stimulus at a faster pace.

Today’s macro agenda (GMT 3)

  • 11:00 Eurozone: current accounts (July)
  • 12:00 Eurozone: CPI (August)
  • 17:00 US: University of Michigan consumer sentiment
  • 20:00 Baker Hughes weekly oil rig count

Current outlook

Major currencies have been trading in positive territory during Asian trading on Friday, September 17 amid corrective movement. Today’s highlights include Eurozone inflation data, US consumer sentiment, as well as triple witching – the expiration of stock options, stock index options, and stock index futures.

Triple witching occurs four times a year on the third Friday of March, June, September and December. Due to the expiration of quarterly contracts, volatility in index futures could unexpectedly surge. Since all markets are interconnected through hedging and arbitrage transactions, heightened volatility can also reach the FX market.

Technical analysis

Sellers pushed down the 1.1770 low by 20 pips. The gains halted at the 16:00 candlestick, and sterling stopped at the 18:00 hour candlestick close due to a sharp rise in the EURGBP pair. The reason for the sharp rise in the cross is unknown. On Friday, the euro is trading in positive territory against sterling. Cross buyers are on the side of EURUSD buyers.

Given that today is Friday, many traders will be exiting short positions ahead of the weekend. By the end of the session, the euro could close higher, with gains in the 1.1795/1.1800 region. That said, another downward move is possible before the North American session. If the cross rises above 0.8540, then EURUSD is unlikely to retrace to yesterday's low of 1.1750. If the cross turns downward, as it turned against sterling yesterday, the 1.1740 level will immediately show up on the radar.

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