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Euro Remains Bullish Above 1.11

Currencies / Euro May 21, 2017 - 05:32 PM GMT

By: Richard_Cox

Currencies

The EUR/USD experienced major upside moves last week with prices moving forcefully ahead of the psychological mark at 1.10. The moves are significant because the suggest that we are now seeing an end to the previous downtrend that had been in place since June 2016. 


There are several reasons to explain why we are seeing these current moves unfold.  Of critical importance is the fact that the European Central Bank (ECB) is starting to reverse its policy and start to pull back from the long-term easing programs that were designed to stimulate the regional economy.  Several finance ministers (most notably representatives in Germany) have suggested the the need to QE stimulus has run its course.  If this turns out to be the case, we will more than likely see reduced money supply flowing through the Eurozone economy and this will be viewed as a bullish event for the EUR/USD.

Price Chart: EUR/USD Daily Chart

In the chart above, we can see several indication which suggest that the long-term downtrend in the EUR/USD is ready to reverse.  Stochastic RSI and the Commodity Channel Index (CCI) have entered into firmly bullish territory and prior instances of historical resistance have been easily overcome.  This is a rising tide that has lifted all ships, so it is critical to utilize a trading platform that offers several EUR pairs so that you are able to catch upside volatility that might not normally be present in the EUR/USD. 
From a fundamental perspective, we would need to see limited suggestions from the Federal Reserve that additional interest rate increases will be needed before the end of this year.  Several data points in the US have not improved in line with market expectations, so this is something that could force the US Dollar lower against several major counterparts. 

Another example of this could be the USD/JPY, as we are seeing similar commentary at the Bank of Japan.  The BoJ has released statements suggesting that there is no longer need for monetary stimulus, and this has managed to come ahead of schedule as far as the Bank’s initial timetables.  The real question here is whether or not this type of stance will materially impact foreign trade rates as higher currency values will almost always have an impact on trade balance figures. 

Broad based Dollar weakness could filter into trends seen in the British Pound (GBP), as well.  How this will impact peripheral pairs like the EUR/GBP is less clear and this is part of the rationale for why it makes sense to stay on the sidelines with these types of pairs for the next few weeks.  At this stage, the broader trend in the EUR/USD is largely clear -- and this will continue to be the case for Euro bulls unless we see prices fall back below the initial breakout point at 1.10.  This could be one of the best opportunities in forex trades for the next few weeks. 

By Richard Cox

© 2017 Richard Cox - All Rights Reserved

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


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