Weekly Analysis: Euro Explodes to the Upside, Capitalizing on a Frail US Dollar. Key Resistance Eyed
Weekly Analysis: Euro strength combined with US Dollar weakness across the board generated a bullish week and a break of key resistance. The pair has exited the consolidation phase but the long term uptrend has not yet resumed.
After breaking the bearish trend line seen on the chart above, the pair consolidated between the 50 days Exponential Moving Average and 1.1875 resistance. Now the consolidation is over and we are dealing with a clear bullish breakout above 1.1875, meaning that the key level at 1.2000 is the pair’s first destination. This is a technical resistance as well as a psychological level (big, round number) and the Relative Strength Index is entering overbought, so we expect to see bounces lower if the pair reaches it.
The week opens relatively slow, with nothing major for the Euro for the first two days of the week. For the US Dollar the highlights will be the New Home Sales scheduled Monday and followed Tuesday by the Consumer Confidence survey. These releases are not known to have a huge impact but usually a higher number strengthens the currency.
Wednesday action picks up with the Preliminary version of the German Consumer Price Index, which is the main gauge of inflation and has a hefty impact on the shared currency because the German economy is the strongest in the Eurozone. Another important release is the Preliminary version of the U.S. Gross Domestic Product, which is the main gauge of overall economic performance and later the same day, Fed Chair Yellen will testify before the Joint Economic Committee of Congress on U.S. economic outlook.
Thursday the European Flash version of the Consumer Price Index will be released and the week ends Friday with the U.S. Manufacturing PMI, which is a survey of purchasing managers that tries to gauge their optimism regarding economic conditions in the Manufacturing sector.
Broad US Dollar selling was the main reason for last week’s continued climb. The pair has now moved into medium term resistance, which makes it susceptible to a bounce lower.
For the last few weeks the pair has traded inside the range created by 1.3320 resistance and 1.3050 support. Currently it’s testing the upper boundary but the last two daily candles are small and with long wicks, showing that bullish momentum is fading, so we may see a bounce that could find support around 1.3250 or even at the 50 days Exponential Moving Average. On the other hand, a clear break of 1.3320 will increase the probability of a move into 1.3450.
The British Bank Stress Test Results will come out Tuesday, offering insights into the financial stability of 7 banks and building societies. The same day the Bank of England will release their Financial Stability Report, which assesses the potential risks for the financial system.
The last event of the week is scheduled Friday in the form of the Manufacturing Purchasing Managers’ Index, which is a leading indicator of economic health and optimism among purchasing managers from the Manufacturing sector.
Written by: Bogdan Giulvezan
The article above is based on the writer’s 7-year experience and it does not constitute trading advice or investment recommendations, just a personal opinion and view of the market.