EUR/USD’s six month bull run may end but trend may not

After rising for six straight months, the EUR/USD looks set to end September lower, barring an unexpectedly sharp rally at the end of this week.

After rising for six straight months, the EUR/USD looks set to end September lower, barring an unexpectedly sharp rally at the end of this week. Part of the reason for its sluggish performance can be explained away by a rebounding US dollar, which has recently found support on renewed hawkishness from the Federal Reserve. From the Eurozone, political uncertainty and disappointment that the European Central Bank has so far refused to taper QE despite an improving Eurozone economy has also weighed on the euro. The ECB has also recently attempted to talk down the single currency, which has arguably worked so far. Last week's German elections saw Angela Merkel's party win the largest share of the votes but fell short of forming a majority government. They won fewer votes than expected while the far right and Eurosceptic AfD secured a much larger portion of the vote than expected. This led to concerns that AfD will now have a voice in the German parliament and weaken Merkel's power. Meanwhile in Spain, Catalonia’s regional government intends to hold an independence referendum on Sunday. However it is unclear if it will go ahead as the Spanish government has promised to stop the vote, which it says is unconstitutional. But if the vote goes ahead then this may create further uncertainty in the region and could be euro-negative.

From a technical standpoint, the EUR/USD's next move will depend on bullish market participants' ability or otherwise to defend their ground circa 1.1700/20 area. As can be seen from the long term chart, below, this level was the top of the prior 2.5-year-old trading range. Given the amount of time price had spent here previously and the fact that the breakdown attempt below the range and towards parity failed at the start of the year, there is no doubt that the long term trend has turned bullish, despite this month's bearish price action. However, if the EUR/USD were to break below this 1.1700/20 area decisively, then it will go back inside the prior range and as such render the recent breakout as a false move. Only then will the bears have reason to celebrate and consequently we may see further follow up technical selling as we head into the final quarter of 2017. But for the time being, the bulls still technically remain in control even if they have lost some ground over the past month or so. We are now on the lookout for bullish signs to emerge again on the lower time frame charts, ideally around the 1.1700/20 area. At the same time, we will be quick to change our minds should support breakdown in a meaningful way here. 

Build your confidence risk free
Join our live webinars for the latest analysis and trading ideas. Register now

StoneX Financial Ltd (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.

No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.

For further details see our full non-independent research disclaimer and quarterly summary.