EUR/USD: Supply Imbalances Topside Still Dominant

The bullish tendencies in the pricing of the pair came to an abrupt halt at the key 1.1435-40 resistance after the Federal Reserve delivered a less dovish rate hike, leading to a major removal of downside liquidity immediately after the event. The daily chart still provides an unambiguous bullish macro backdrop, even if the back-to-back daily topside rejections, accompanied by the intraday impulsive move down clouds the outlook for the pair short-term.

I must say that we are experiencing an unprecedented and very prolonged compression in this pair. Be prepared for volatility to pick up substantially on a breakout. For now, imp vols via options do suggest gamma scalping at the edges of the broad range should continue to ensure familiar levels.

Let’s be clear. Sellers have gained ground, but structurally wise, the battle is not yet loss by buyers, as the cycle of higher highs and higher lows is still intact. The sell-side flows managed to absorb Tuesday’s POC, but residual demand at 1.1350-55 still needs to be cleared before the structure turns bearish on the hourly time frame. On the upside, the clustering of offers around 1.14 (POC Wed) must contain further appreciations or else 1.1420 (origin supply imbalance post Fed) is next up, in which case, the risk of an upside breakout would be a realistic outcome to expect.