Dollar Bulls are Liquidating

EUR/USD Technical Analysis – 22 May 2017

EUR/USD spot: 1.1174

Support: 1.1121, 1.1073, 1.0875

Resistance: 1.12, 1.1276, 1.1374

Strategy:

• Buy a reversal off support at 1.1121 or 1.1073
• Profit targets: 1.1276, 1.1374
• Stop loss: 1.1073

Last Week’s Action

The Euro had a very strong move last week. The scandals surrounding Donald Trump intensified while the Eurozone data continued its encouraging trend.

But, while it’s easy to attribute the price moves to fundamentals, the move was supported by technicals too. The USD is moving in the wrong direction for Dollar bulls, many of whom hold large positions. Liquidations of USD longs may well have been the biggest force in the market last week.

We were stopped out of our short at 1.1025 and switched to long. This position was closed when momentum slowed at 1.1115.

Where to Now?

This week Mario Draghi will speak and the German IFO Business Climate data will be released in Europe. In the US, the FOMC meeting minutes and preliminary GDP data will be released while Donald Trump will meet leaders of Nato.

It is now looking like the Fed’s proposed June rate hike may be postponed – if that narrative gathers traction it will support the Euro. The trend has gathered enough momentum that it would take very unexpected data or news to reverse it.

The counter argument is that ‘risk on’ speculation is increasing across all asset classes and brokers are reporting high levels of leverage. That means a correction may be severe if it forces leveraged speculators out.

Technically still Rangebound

We have included this longer term weekly chart to put the current price action in perspective. Until the Euro trades above 1.16, it’s still in a sideways range. This really makes it very likely that the 1.16 level will be tested before we have a decisive move further. However, the market is very overbought, so it may take a few retracements before the Euro gets there.

EUR/USD Weekly chart

Buy the Dips

This trend now has a life of its own and it would take very good news for the USD or bad news for the Euro to cause a reversal. However, nothing travels in a straight line, and we are sure to see corrections along the way. The Euro may even correct all the way to 1.0875 and then close the gap a little lower. We would only consider longer term shorts if it fell below the gap at 1.077.

In time, there may be high probability short trades for short term traders, but right now there isn’t enough structure to define them. So, for now all we can do is buy the dips as the market makes its way toward 1.14 and 1.16.

EUR/USD 4-Hour Chart