The Retracement Loses Steam

EUR/USD Analysis – 19 June 2017

EUR/USD spot: 1.1195

Support: 1.1131, 1.1073, 1.10

Resistance: 1.1288, 1.1366, .1.1428

Strategy:

• Hold shorts with stop at 1.1238, and target at 1.1073, but close trade if long trade below is triggered.
• Long on strong bullish reversal between 1.11 and 1.116
• Profit Targets: 1.13 and 1.14
• Stop Loss: 1.11

Alternative Strategy: Short below 1.11 with targets at 1.10 and 1.085

Last Week’s Action

The main event last week was the Fed’s rate decision and Janet Yellen’s remarks. As expected she announced a 25-basis point hike in rates, and reiterated the Fed’s intention to hike rates again later in the year. She also mentioned the Fed’s intention to begin quantitative tightening.

Janet Yellen’s stance and the data are diverging and the market does not seem convinced by her comments.

While the USD strengthened against the Euro and Japanese Yen, is was weaker against most other currencies last week. On Friday, weaker than expected US housing starts and consumer confidence ended the USD’s rally. European economic data was slightly bullish for the Euro.

Where to Now?

The outlook is now uncertain and neutral. The expected retracement has lost momentum and is increasingly unlikely, but may happen if news flow is negative for the Euro.

The fundamentals are still pointing to longer term USD weakness, so at some point we should see the Euro resume its climb to 1.14 and eventually 1.16.

There is very little data out this week in either the Eurozone or the US. Even unemployment claims are unlikely to do much for the market. The focus will therefore be on political developments in both Europe and the US.

The Bull Flag is Still in Place

The long-term chart still shows a clear bull flag, though resistance at 1.13 is strong. We will need to see a strong catalyst to trigger that break, but when it does break we could see a strong move higher. The next move may come on the back of political developments in the US where Trump’s agenda remains stalled.

EUR/USD Weekly Chart – Possibly a top, but more likely a bull flag

The Retracement has Lost Momentum

The market doesn’t seem to be convinced by Janet Yellen’s hawkish stance, and the retracement has lost momentum. In the short term, the market remains rangebound and neutral. Given that the longer-term picture points to Euro strength, traders may want to buy the bottom of the range, and only enter shorts below 1.11. Neither of these are high conviction trades given the market’s decreasing volatility.

EUR/USD 4-Hour Chart – Range bound for now