Justin Pugsley - Justin has over 20 years experience writing about markets, economics and finance. He has worked for a number of leading media organisations such as Agence France Presse (AFP), Dow Jones, Wall Street Journal, Thomson-Reuters, British Sky Broadcasting and McGrawHill.
Justin Pugsley
Justin has over 20 years experience writing about markets, economics and finance. He has worked for a number of leading media organisations such as Agence France Presse (AFP), Dow Jones, Wall Street Journal, Thomson-Reuters, British Sky Broadcasting and McGrawHill.
Profile

1.2000 will be a key test for EUR/USD rally

The EUR is on the rampage and looking increasingly unstoppable thanks to a combination of the Eurozone’s improved political and economic situation contrasting with political uncertainty in the US – but can the rally continue much further?

Indeed, EUR/USD 1.2000 will be a significant test for this rally – a level last seen around January 2015.

With a series of national elections having passed without incident in the Eurozone and a pickup in economic growth has decisively transformed sentiment towards the EUR with continued chatter that the European Central Bank (ECB) may start tapering its quantitative easing programme. Even Greece returned to the bond market after a three-year absence – it seems like the only way is up for the Eurozone.

1.2000 will be a key test for EUR/USD rally

With a series of national elections having passed without incident in the Eurozone and a pickup in economic growth has decisively transformed sentiment towards the EUR with continued chatter that the European Central Bank (ECB) may start tapering its quantitative easing programme. Even Greece returned to the bond market after a three-year absence – it seems like the only way is up for the Eurozone.

This leaves traders wondering if Trump will ever be able to pass his tax reforms and unleash his infrastructure plans never mind lift GDP growth to anywhere near 4% a year. Meanwhile, many economists reckon the EUR is still fundamentally under-valued, implying more gains to come.

Though there is tremendous momentum behind this rally there are some reasons to be cautious over how much further it can run, particularly in the short- to medium-term.

A growing number of analysts are turning very bullish towards EUR – overly bullish sentiment is often a precursor to a reversal or period of consolidation.

Spreads between US and Eurozone debt are widening in the former’s favour and in a yield starved world this could in time undermine the EUR’s rally.

The ECB is unlikely to stand idly by if the EUR keeps powering higher – as it nears EUR/USD 1.2000 or even crosses it, it’s tone on monetary policy could turn much more dovish.

Politics has not gone away. Though the German elections this year are unlikely to cause an upset, Italy’s due to be held before May next year still could.

Also, it is notable that the EU’s great hope, French President Emmanuel Macron, is seeing his honeymoon period fading rapidly as the nation appears not to share his zeal for economic and labour reforms.

Domestic battles could see the stridently pro-EU Macron distracted from helping to drive ever closer union, besides much of the French public is Eurosceptic in its outlook.

The EUR rally could still run quite a bit further as it doesn’t just reflect positive news about the Eurozone, but also disappointment at the failure so far of the US administration to deliver much faster economic growth.

 

TECHNICAL ANALYSIS: EUR/USD a period of consolidation is pending

The EUR/USD rally has been a strong one and the strength of the momentum suggests it has further to run even as it stretches technical indicators into overbought levels. The daily RSI has moved back into overbought territory and the pair continue to pierce the upper Bollinger bands.

This implies a period of consolidation is close, probably somewhere between 1.1700-1.1800. Beyond that key tests for this rally are likely to be around 1.1850 and 1.2000.

Resistance levels are around 1.1777, 1.1790-5, 1.1850, 1.1861 and 1.2000 with support seen at 1.1678, 1.1634, 1.1556 and 1.1516.

 

By Justin Pugsley, Markets Analyst, MahiFX

comments powered by Disqus

Trader Stories

Latest Interviews

Statement on CHF market volatility

Business as usual for MahiFX despite Swiss franc movement

Full Interview

MahiFX does not provide investment advice or recommendations, and no material on this site should be construed as such. Opinions are those of the authors and not necessarily those of MahiFX, its officers or directors. MahiFX’s Terms of Use and Privacy Policy apply. Leveraged trading is high risk and not suitable for all. You could lose some or all of your deposited funds.