Title: EUR/USD at 1.1600 – Breakout or Bull Trap?
Original Author: Fawad Razaqzada, Market Analyst at FOREX.com
The EUR/USD currency pair recently reached the 1.1600 level, a significant psychological and technical resistance, prompting traders to evaluate whether this move represents a genuine breakout or a false upward surge — commonly referred to as a bull trap. Several fundamental and technical factors need to be considered to assess the Euro’s near-term and longer-term prospects against the US dollar.
This article analyzes the recent EUR/USD movements, economic events shaping the pair, and key technical indicators to determine whether the latest advance above the 1.1600 mark has staying power or is likely to falter.
Overview: What Happened to EUR/USD?
– EUR/USD surged to the 1.1600 threshold, its highest level since mid-September.
– The gain was primarily driven by broad weakness in the US dollar, stemming from lower Treasury yields and dovish implications from recent Federal Reserve communications.
– European Central Bank (ECB) hawkish expectations and improving Eurozone data provided added support for the single currency.
– Now, traders are wondering: Is this a true breakout, or a bull trap that could trick buyers into heavy long positions right before a reversal?
Key Drivers Behind the EUR/USD Move
Several factors contributed to EUR/USD’s push to 1.1600. Understanding these drivers offers insight into the sustainability of the move and potential future direction.
1. Shifting US Dollar Sentiment
– The US dollar has been retreating in recent weeks as traders grow less convinced that the Federal Reserve will tighten monetary policy aggressively in the short term.
– Market reaction to recent US economic data has highlighted slowing momentum in growth and inflation.
– Fed officials, while maintaining a cautious tone, have not aggressively pushed for rate hikes, sparking speculation that the tightening cycle may slow down or even pause.
– As a result, US bond yields have declined, reducing the greenback’s attractiveness and boosting the EUR/USD pair.
2. European Central Bank Expectations
– Investors are beginning to price in a potential ECB rate hike for 2022 due to rising inflationary pressures in the Eurozone.
– While Lagarde has attempted to temper market expectations, stressing that inflation will likely be transitory, the official tone is less dovish than in previous months.
– The shift has supported the euro, especially against currencies like the dollar, where central bank expectations are shifting in the opposite direction.
3. Economic Divergence Shrinking
– The gap in economic performance between the US and the Eurozone is narrowing.
– While the US has enjoyed faster post-pandemic recovery, recent data suggests a plateauing trend, whereas European nations are playing catch-up.
– PMIs and industrial production data from the Eurozone have shown resilience, further aiding the euro’s standing.
Technical Analysis: Breakout or Bull Trap?
From a technical standpoint, the 1.1600 level is a key pivot point that deserves close scrutiny. The market reaction around this area will likely determine whether the recent rally will extend or reverse.
Key Technical Levels:
– Resistance: 1.1600, 1.1640, 1.1700
– Support: 1.1570, 1.1530, 1.1460
1. Resistance at 1.1600
– 1.1600 is not just a psychological barrier — it also marks a previous high area from early September.
– The market has tested this level several times and failed to push through, making it a key bull/bear battleground.
– A sustained breakout above 1.1600 would suggest further momentum-led upside, likely targeting 1.1640 (resistance from August) and eventually 1.1700.
2. Bull Trap Warning
– While EUR/USD pierced the 1.1600 barrier intraday, failure to close above this level on a
Read more on EUR/USD trading.