The euro is looking increasingly confident against the US dollar ahead of this month’s ECB policy meeting with the pair bouncing off the lows at 1.11 and moving back above 1.12 at the time of writing.
The euro had a rough May against both the pound and US dollar, but June is certainly looking more constructive.
The pair appears to have bounced off the support provided by the December-May trend line. The move offers a clear message - the uptrend is still valid.
Of course, there is a risk that this is too a basic assessment of the pair’s prospect. Nevertheless, “intraday price action looks mildly encouraging for the EUR, although spot appears to be stalling in the upper 1.11 area again, near the scene of yesterday’s strong reversal lower,” says Shaun Osborne, an analyst with Scotiabank.
Osborne reckons price action may remain neutral between 1.1165/75 and 1.1100 for now but our broader thinking on the EUR’s technical prospects continue to be coloured by the longer-term, negative price signals that have accumulated through May.
“We expect strong resistance to cap modest EUR rallies from here; weakness will extend be low key support at 1.1065,” says Osborne.
Could the Pair Hit 1.18 Again?
A recovery in the EUR to USD conversion towards 1.18 may be on the cards argues Blackwell Global Markets’ Mathew Ashley, who sees a potential bullish pattern developing.
The euro has been falling against the dollar for four-weeks but the tide may be turning more in favour of the single currency, says Ashley:
“An overwhelmingly bearish EURUSD could have many traders tempted to jump on the bandwagon in an attempt to squeeze a few extra pips out of the pair. However, despite what the EMA’s might be telling us, the EURUSD could be about to make a fairly spectacular recovery.”
The analyst interprets activity from the December lows as comprising the first three waves of a three-drive pattern.
The pattern is made up of rally, followed by a pull-back, followed by another rally of similar momentum to the first, followed by a pull-back of similar momentum to the first pull-back, followed eventually by a third and final rally of similar magnitude, velocity and length to rally’s a) and b) (see chart below, pattern in purple).
The existence of solid support from the 200-day moving average (MA) and the lower channel of an ascending channel are further compelling reasons to expect at the very least a pause, if not probably a complete rebound at current levels.
Commerzbank’s Karen Jones, expects a small bounce at current levels because of the tough support, but she sees the recovery as short-lived and a high probability of a resumption of the down-trend eventually:
“EUR/USD has tested and is currently seeing a tiny rebound from the critical 1.1102/1.1058 key support. This is the location of the 200 day ma, the 55 week ma, the December high, the March 16 low and the short term uptrend. This is major support and we are not surprised to see it hold the initial test.”
Jones sees, “Initial resistance” at 1.1216, “the 25th April low,” and, “the market remains directly offered below here.”
She mentions the lower boundary of the channel too:
“The base of the 6-month channel is expected to act as the break down point to the second channel at 1.0562. Rallies are expected to remain muted, it is directly offered below resistance at 1.1465/95.”
By “directly offered” she means there are a lot of sell orders at these levels, which would be expected to slow progress higher.
Singapore based OUB Banking Group’s Leang and Anne see current levels as well supported and likely to lead to the pair consolidating in a sideways range for a while.
“The recent downward pressure has clearly eased and the current movement is likely the start of a consolidation phase. In other words, expect range trading for today, likely between 1.1115 and 1.1180.”
Over the 1-3 week horizon, they also see the potential for an extended rebound:
“The short-term rebound was stronger than expected and has clearly diminished the odds for a move to our partial profit-taking level of 1.1055.”
Leang and Anne would ideally wish to see a break above the 1.1200 level as signifying a bottom was in place, and a bullish revival was on the cards.
Like OUB we see the 1.1200 level as it represents roughly last week’s closing price and Friday’s highs, making a break above it a significant signal.