EUR/USD spot: 1.1409
Support: 1.138, 1.13, 1.1288
Resistance: 1.144, 1.1446, 1.1615
Strategy:
Hold longs with 1.16 target and stop loss at breakeven.
There was plenty of news and data flow on both the Euro and Dollar last week, and traders were kept busy. Slightly better than expected US PMI data early in the week kept the USD on the front foot until Wednesday. Eurozone data was largely in line with forecasts, but negative data out of the UK weighed on the Euro.
The Euro rebounded on Wednesday and Thursday after the ECB minutes revealed they are indeed talking about tapering their quantitative easing program. We were looking for a bullish reversal close to 1.13 and that move gave us a reversal with a low at 1.1312.
Friday’s US employment data was mixed, which the market saw as positive and led to a slight recovery for the greenback, which strengthened the resistance that is developing above 1.14.
The US data last week was probably a bit better than expected and plays into Janet Yellen’s narrative rather than the one the market has been projecting. That may mean 2nd Quarter GDP may be a little stronger, and a September rate hike may well be on the cards. But for the week, technical factors will dictate the moves.
The short-term forecast is now less certain and there are a number of scenarios that could play out. If the Euro can break above 1.145 and hold, a rapid move to 1.16 would likely follow.
However, forecasts and sentiment are bullish for the Euro in the very short term, but bearish on a monthly and quarterly view. If one was to use sentiment as a contra indicator we may be looking at a short-term retracement, given that resistance is developing above 1.14. A false breakout at 1.145 could easily lead to a rapid retracement as traders with long Euro positions liquidate.
And, a move below 1.13 or 1.129 would be negative as strong support has developed there. The market is probably using that area as a stop loss, and a move through those levels will probably be quite rapid.
On the weekly chart, the Euro has reached the target from the 6-week bull flag formation. There is some resistance at 1.1446 which is gathering strength on the shorter-term charts. If the Euro fails to make a new high, its likely to fall back to 1.13, from where a sell-off could accelerate. The top of the weekly range is still 1.16, but we will need to see another wave of new buying to get the Euro to that level.
EUR/USD Weekly Chart – Another bull flag?
The 4-hour chart is forming an ascending triangle which could break in either direction. A break below 1.138 could trigger new selling targeting 1.13, which could in turn trigger stop losses and bring the Euro back to 1.12. A break to the upside would put the Euro back on course to reach the top of the range at 1.16.
EUR/USD 4-Hour Chart – Which way will the triangle break?
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