EURUSD the real deal - part II

For a few hours as London session opened yesterday, it appeared a period of mean reversion was set to sweep across global markets. Equities were flashing red and the U.S. dollar observed making gains against the Euro and other G10 currency pairs.

Charts (5)

However, such is the strength of the dominant U.S. dollar downtrend, that by the time the Asian market walked in this morning, the EURUSD had rallied back to close near cycle highs. Perhaps aided by upbeat comments on the EU Recovery Fund from the German Finance Minister who said the “everyone has the will to reach an agreement within a short time” following constructive conversations with members of the “frugal four” Austria, Denmark the Netherlands and Sweden.

As noted recently here the EU Recovery Fund if agreed upon is a symbolic first step towards fiscal union, the lack of which is been seen as the EU’s and the Euro's “Achilles heel”.  At the same time, the U.S. dollar has fallen dramatically out of favour, much as it did following U.S President Trumps Tax cuts in late 2017 that sparked concerns over the “twin deficits”.

This time around it is a combination of social unrest, mismanagement of the COVID-19 pandemic, ballooning deficits and other political decisions that have sparked fears the U.S. dollars status as the reserve currency of the world is under threat.

This has suited out bullish bias in the EURUSD and the recent break above resistance at 1.1150 was confirmation the next leg higher was underway and the catalyst to re-open longs in the EURUSD.

“To this effect, I am watching for a break and daily close above 1.1150 to confirm the breakout and that the next leg higher is underway towards the year to date highs 1.1500 area. In this instance, consider opening a long EURUSD trade with a stop loss placed 25 pips below the 200 days moving average, currently at 1.1010.”

Presuming the FOMC meeting tomorrow morning (4.00 am Sydney time), does not unveil any surprises we would view a sustained break of the downtrend resistance 1.1360/90 (coming from the February 2018, 1.2555 high) as a signal the next leg higher in the  EURUSD towards 1.1500 is underway.

The stop loss on EURUSD longs opened on the break above 1.1150 should be placed just below yesterday's low 1.1235 area, ensuring a small profit on the trade, if the trailing stop is reached.

EURUSD the real deal – part II

Source Tradingview. The figures stated areas of the 10th of June 2020. Past performance is not a reliable indicator of future performance.  This report does not contain and is not to be taken as containing any financial product advice or financial product recommendation

Build your confidence risk free

More from EUR

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.