EUR/USD upsurge continues
Fawad Razaqzada May 16, 2017 12:00 PM
The euro continues to defy gravity. The single currency is up sharply against all of its major rivals, including the pound which took a beating despite stronger UK inflation figures released this morning.
The euro continues to defy gravity. The single currency is up sharply against all of its major rivals, including the pound which took a beating despite stronger UK inflation figures released this morning. The EUR/USD has broken well past the 1.10 handle, to achieve its best level since early November. The EUR/USD’s rally is driven almost entirely by the strength of the euro today, rather than the dollar as the latter is up against the likes of the pound, yen and the Aussie. But the US dollar has been somewhat weak recently thanks to slight deterioration in US macro data. In terms of the Eurozone, a sharp reduction in political uncertainty here has been the number one driver behind the euro, following the market-friendly outcomes of the French general and German local elections. In addition, economic data – most notably inflation – has been strengthening noticeably here, leading to calls for the ECB to tighten its belt. The latest growth figures released this morning suggests the Eurozone economy is continuing to expand at a steady pace, led by Spain, Germany and Netherlands.
The EUR/USD’s technical outlook continues to improve for the bulls and deteriorate for the bears as price breaks more and more resistance levels. And today it delivered anther hammer blow for the bears as it surged through its bearish trend line, breaking the 1.10 handle in the process. One can now reasonably expect the area around 1.10 to turn into support upon re-test. However if the point of origin of the breakout at 1.0980 fails to hold the EUR/USD, only then will the bears have a case to look for selling opportunities for then the breakout would be considered a fake out. Either that or if we see some decisively bearish price patterns at higher levels. Until and unless at least one of these conditions are met, the path of least resistance will be to the upside. As such, the upcoming potential resistance levels should be viewed as profit targets for the bulls rather than entry levels for the bears. Expect support levels to hold as many people who have missed the rally will probably be looking for opportunities to get on board.
So, where are the next support and resistances levels? Well, support is easy to identify given the manner in which the EUR/USD has rallied. The 1.1000/20 range is the first and key support area to watch now as it was the last resistance area prior to today’s breakout. A potential break below here, would be bearish as mentioned, but there will be further supports at lower levels that could hold up the euro, including at around 1.0870, 1.0820 and 1.0725. Meanwhile in terms of resistance, I can’t see anything that stands out to me now until the 1.1100-1.1130 area. Previously, this range had been pivotal. What’s more, the 61.8% Fibonacci retracement level against the 2016 high, comes into play here. Above that range, the next level to potential resistance – or bullish target – would be above 1.1300, the last swing high.
GAIN Capital UK Limited (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.