EUR/USD hits best level since 2015
Fawad Razaqzada July 25, 2017 5:18 PM
The EUR/USD earlier climbed to its best level since 2015. The world’s most heavily-traded currency pair briefly climbed above 1.17 before paring its gains amid profit-taking.
The EUR/USD earlier climbed to its best level since 2015. The world’s most heavily-traded currency pair briefly climbed above 1.17 before paring its gains amid profit-taking. The EUR/USD has been in a relentless rally since the turn of the year as the US dollar started to fall back and the euro climbed on improving Eurozone fundamentals. Large fiscal stimulus programmes and tax cuts that were promised by Donald Trump never really came to realisation for one reason or another, causing investors to price out the prospects of strong growth in the US. The Fed’s planned rate rises were mostly priced in by early this year, so when the central bank actually tightened its policy, the dollar hardly responded in the way one would have expected. The greenback wasn’t helped by weakness in US data. In the Eurozone meanwhile speculation rose that the ECB would soon taper its QE stimulus package as inflation and other macro pointers improved.
However, the ECB has so far resisted the pressure and some would argue that the euro may be getting ahead of itself. Indeed, the IMF has warned the ECB against tapering QE prematurely. The fund has urged the ECB to keep its extraordinary stimulus in place until there is more evidence that inflationary pressures are rising. The EUR/USD’s next short-term move may depend to some degree on the outcome of the latest FOMC policy decision on Wednesday. Rates are widely expected to be held unchanged, so the focus will be on the wording of the policy statement. We think this Fed meeting will turn out to be a bit of a damp squib and the US GDP on Friday may provide a more significant direction for the dollar.
With the dollar severely oversold and euro overbought, a potential correction in the EUR/USD would not come as surprise to us now. However rather than calling the top, we will wait for price to tell us when that may be. But the EUR/USD has now reached the top of its 2.5-year range at around 1.1700. Unsurprisingly, the weekly RSI has climbed to ‘overbought’ levels (i.e. above 70) after the recent upsurge. The RSI will need to unwind from these levels eventually. This will be achieved either through price action (bearish) or time (bullish). Thus a period of consolidation may actually be positive for the EUR/USD. That being said, the RSI can get to significantly higher levels before the EUR/USD rally falters. With the trend clearly bullish, we will continue to look for bullish setups on the lower time frames until we see a clear reversal pattern unfold on this pair. An example of a reversal pattern could be a false break above 1.1710, combined with a bearish-looking daily or ideally weekly candle, and the confirmation would be a break in market structure (i.e. when the last higher low gives way).
Source: eSignal and FOREX.com
Disclaimer: The information on this web site is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement. The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.
Futures, Options on Futures, Foreign Exchange and other leveraged products involves significant risk of loss and is not suitable for all investors. Losses can exceed your deposits. Increasing leverage increases risk. Spot Gold and Silver contracts are not subject to regulation under the U.S. Commodity Exchange Act. Contracts for Difference (CFDs) are not available for US residents. Before deciding to trade forex and commodity futures, you should carefully consider your financial objectives, level of experience and risk appetite. Any opinions, news, research, analyses, prices or other information contained herein is intended as general information about the subject matter covered and is provided with the understanding that we do not provide any investment, legal, or tax advice. You should consult with appropriate counsel or other advisors on all investment, legal, or tax matters. References to Forex.com or GAIN Capital refer to GAIN Capital Holdings Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.