Spot: 1.0650
Support: 1.0640, 1.0607, 1.0590
Resistance: 1.0677, 1.0709, 1.0832
Strategy: Long on a break above 1.0677 or a bullish reversal off 1.0607.
On Wednesday, the Euro rallied strongly from an oversold level, having traded as as low as 1.0520. The Euro has now rallied as high as 1.0677, and broken the downward channel which started at the beginning of February. The rally pulled back from resistance at 1.0677 and is currently establishing support at 1.0640.
The big picture is still bullish for the USD, although we may see further weakness over the next few weeks. Fundamental news will come into focus over the next month – but at this point what that may mean is mystery. President Trump is expected to announce his tax plan, and the US government will reach a new debt ceiling in March. These events and the reaction from the House and Senate will give the market more clarity on spending and the likely impact on rates and GDP growth in the US.
The market’s outlook has been bullish for the dollar and the moves in equity and bond markets have supported this view. However, if Congress becomes tied up over any of Trump’s proposals the outlook may change rapidly. Until April, the focus will be on US policy rather than news out of Europe.
On the upside, if the pair breaks 1.0677 the initial target will be 1.0709, and then 1.08 and possibly even 1.10. A move that big would have to be accompanied by a news surprise.
If the Euro’s rally loses steam, it is likely to come back to test 1.0607 – this is a lateral support level and close to the 50% retracement of the rally. While the market stays above that level the bias should be bullish.
Below 1.059, the rally is likely to fail completely and a bearish bias would be appropriate, with an initial target of 1.052.
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