The Euro’s Next Leg Higher has Begun

EUR/USD Technical Analysis – 5 June 2017

EUR/USD spot: 1.1264

Support: 1.1160, 1.1073, 1.0875

Resistance: 1.1285, 1.1366, .1.1477

Strategy:

  • Long on the next bullish reversal on 4-hour chart
  • Profit targets: 1.1364, 1.1477
  • Stop loss: 1.12

Alternative strategy: Look for short trades if the market falls below 1.1081

Last Week’s Action

We expected that if 1.1160 gave way we would see a deeper correction – this was not to be, which shows how weak the USD is.

The big feature last week was a weaker than expected non-farm payroll number in the US. That saw the Dollar tumble on Friday, as the Euro rallied to a 7-month high. The Fed meeting minutes revealed that the Fed thinks slower growth is temporary, but also created the impression that we may not see three rate hikes this year. There may well still be a hike on the 14th of June, but that may be the last for the year too.

In Europe, GDP was stronger and manufacturing PMI bullish for the German economy. US data continues to underwhelm, while Europe and China are showing a sustained recovery.

Where to Now?

There is a lot happening this week that may affect currency markets. The UK has a general election on Thursday and is dealing with the aftermath of two successive terrorist attacks. Although the USD is fundamentally weak, further geopolitical tension may be positive for the USD. The Conservative party is still ahead in the UK polls, but by far less than expected. A weak performance by the Tories on Thursday will probably be bad for Europe and the Euro.

There’s also a fair amount of data. In Europe, we will see Retail Sales and Retail PMI for the region, and the ECB Meeting and Press Conference may indicate how far the Euro can go. In the US, ISM Non-Manufacturing PMI, Factory Orders and Unemployment Claims will give us an idea of GDP over the next few months.

Thursday will also see James Comey testify to the Senate committee, which will bring the Trump Administration back into the spotlight.

No Change in Overall Long Term Pattern

The weekly trend is still firmly in place with an ultimate target of 1.16. The market is targeting the weekly peaks from 2016, with a small consolidation after each level is reached.

It’s entirely possible that we may still have a deeper correction at some point, and this week’s data and news could be a catalyst. However, any news that fits the current narrative will probably send the Euro higher.

2017-06-05-eurusd-weekly-chart

EUR/USD Weekly Chart

Data and News will Dominate this Week

The 4-hour chart is not giving us very much to work with, so fundamental news flow will dominate this week. Sentiment is negative for the Euro which is a bullish sign so we would still favour long trades now.

If the news flow causes a short-term top, we may see a sharp decline – There are plenty of long Euro positions which will need to be closed, and USD bulls have already liquidated. However, we would be cautious of pre-empting that sort of move while the trend is up.

2017-06-05-eurusd-4h-chart

EUR/USD 4-Hour Chart

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