EURUSD seeks altitude above bull/bear divide
Tony Sycamore May 11, 2020 6:30 AM
In our last update on the EURUSD, it was outlined how in the past, the anticipated direction of interest rates was a reliable guide in the past for determining the direction of FX pairs. However, as interest rates converged to zero in most developed economies, following the spread of COVID-19 in March, traders have looked to other variables such as the success of a countries virus containment, the degree of central bank and government stimulus as well as the prospects of countries to begin to re-open economies.
In our last update on the EURUSD, it was outlined how in the past, the anticipated direction of interest rates was a reliable guide in the past for determining the direction of FX pairs.
However, as interest rates converged to zero in most developed economies, following the spread of COVID-19 in March, traders have looked to other variables such as the success of a countries virus containment, the degree of central bank and government stimulus as well as the prospects of countries to begin to re-open economies.
Against most of the metrics outlined above, Europe is making progress, as previously hard-hit France, Spain, and Italy commenced easing lockdown restrictions. And despite a ruling last week by the German Constitutional Court that threatens the ECB’s quantitative easing program, the EURUSD held key support, perhaps buoyed by ECB President Lagarde’s comment, the ECB was “undeterred” by the German court’s ruling.
We have previously made note of the importance of long term trendline support in the EURUSD (from the .8231 low from 20 years ago) coming in now around 1.0750/30ish. As can be viewed on the Monthly Chart below, the EURUSD currently sits above this support, which in a nutshell has become the bull/bear divide i.e. bullish above and bearish below.
In the short term, it can be observed, the EURUSD bounced again last week from ahead of the longer term trendline support and specifically from the 1.0770/60 region that halted previous declines in early April and in February 2020. While above this crucial support region, there is potential for the EURUSD to recover back towards short term resistance 1.1000/20 and possibly to the 1.1147 high of late March.
However, keep in mind that as always its best to know in advance when a view becomes obsolete. In that context, should the EURUSD lose the critical support 1.0750/30 area and then break below the 1.0636 March low it would warn that a move towards the 2017, 1.0340 low is unfolding, with risk towards parity.
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