Euro: USD/EUR (EUR=X) Unlikely to Rise Above $1.15

Euro: USD/EUR (EUR=X) Unlikely to Rise Above $1.15

The buoyed up sentiment on international financial markets is spilling over into forex rates, with some huge currency moves in recent weeks. The three traditional safe-haven currencies, Swiss franc, United States dollar and particularly the yen have come under significant selling pressure. The euro has been a major beneficiary as the ECB, the European Union and national governments roll out largescale stimulus packages – this has also seen European stocks markets play catch-up recently in the global equity rally.

The EURUSD rate has climbed to higher than $1.13 from $1.08 in mid-May. EUR-YEN has risen from ¥115 to ¥124, a 12-month high. Other currencies have also made significant gains against the dollar and yen. The Australian dollar has rebounded from lows close to $0.55 in mid-March to $0.70. Meanwhile, cable has risen from $1.15 to above $1.26 over a similar period, despite growing issues concerning the risk of a no-deal, hard Brexit at end of 2020. The United States currency has fallen from C$1.46 to C$1.35 against the Canadian dollar in the same timeframe.

It ought to be noted that the safe-haven currencies are coming off very high levels and, indeed, remain elevated on a historical basis. The United States dollar’s trade-weighted index is back to levels that it traded at for much of last year and continues to be some 10% above the lows it hit in early 2018. Indeed, the EUR-USD rate is only moving back into the $1.12-1.15 trading range that it occupied throughout the first half of last year. it is hard to call the next big moves in FX markets.

The EUR/USD rate has been confined to a narrow corridor of €1.07-1.15 since the fall of 2018. A return to heightened risk aversion on markets, presumably on fresh concerns over the economic outlook associated with ongoing COVID-19 restrictions, would likely trigger a renewed flight back into safe-haven currencies. This might see the euro fall quickly back below the $1.10 level. On the other hand, if a robust and sustained recovery takes root in the second half of the year, the dollar and yen may continue to lose ground.

However, it’s about to be difficult for the euro to rise over$1.15, which it has not traded higher than since q4 2018. Indeed, profit taking by traders may soon halt the dollar’s slide as market positioning is now quite short the currency.

A move higher than $1.20 would be a tall order for the euro because it has not been above this level since the ECB moved to negative rates in 2014, with the exception of a brief period in H1 2018. The Fed continues to rule out negative rates for the United States, while markets expect the ECB to keep up negative rates for much of the coming decade. Negative rates, then, are likely to remain a headwind for the euro, nonetheless the fact that much of the interest rate differential supporting the dollar has been eroded by Fed rate cuts.

The currency we remain most concerned about is sterling, given the lack of progress in the EU-UK trade talks and with the British Government continuing to flatly rule out an extension to the end December deadline to reach a trade deal.

This points to either a awfully limited ‘bare-bones’ trade deal with the focus on avoiding tariffs, or no-trade deal at all and UK-EU trade being conducted below World Trade Organization rules from next year. The latter would be very negative for sterling. The United Kingdom currency has lost significant ground against the euro since earlier in the year. It may prove to be a troublesome second half to the year for sterling if negotiations stay bogged down and it seems that we could also be heading for another cliff-edge Brexit date in December.

EUR-GBP may head towards last year’s Brexit related uncertainty high of 93p in such circumstances.

This week, it’s the turn of the Fed to hold its June policy meeting. No changes are expected to be made to the funds rate, that is effectively at zero. Markets had briefly toyed with the likelihood of negative rates, however Chair Powell pushed back against this. Instead, the Fed has stressed that rates will remain lower for longer.

With respect to net asset purchases, the central bank has already announced essentially unlimited QE, however markets are going to be eager to gain any further insight into whether or not the Fed is willing to officially countenance the likelihood of some form of yield curve control. Finally, the central bank will also publish its latest macro projections this week, its first set since December.

Euro/US Dollar Exchange Rate

Euro/Sterling Exchange Rate

Sterling/US Dollar Exchange Rate

Today’s Forex Rates

Euro/US Dollar FX Polls

Economic Events

Technical Indicators

Overall, the bias in prices is: Upwards.

Note: this chart shows extraordinary price action to the upside.

By the way, prices are vulnerable to a correction towards 1.10.

The projected upper bound is: 1.14.

The projected lower bound is: 1.11.

The projected closing price is: 1.13.

Candlesticks

A white body occurred (because prices closed higher than they opened).
During the past 10 bars, there have been 9 white candles and 1 black candles for a net of 8 white candles. During the past 50 bars, there have been 26 white candles and 24 black candles for a net of 2 white candles.

A long upper shadow occurred. This is typically a bearish signal (particularly when it occurs near a high price level, at resistance level, or when the security is overbought).

Momentum Indicators

Momentum is a general term used to describe the speed at which prices move over a given time period. Generally, changes in momentum tend to lead to changes in prices. This expert shows the current values of four popular momentum indicators.

Stochastic Oscillator

One method of interpreting the Stochastic Oscillator is looking for overbought areas (above 80) and oversold areas (below 20). The Stochastic Oscillator is 74.2958. This is not an overbought or oversold reading. The last signal was a sell 0 period(s) ago.

Relative Strength Index (RSI)

The RSI shows overbought (above 70) and oversold (below 30) areas. The current value of the RSI is 71.60. This is where it usually tops. The RSI usually forms tops and bottoms before the underlying security. A buy or sell signal is generated when the RSI moves out of an overbought/oversold area. The last signal was a sell 64 period(s) ago.

Commodity Channel Index (CCI)

The CCI shows overbought (above 100) and oversold (below -100) areas. The current value of the CCI is 109.This is an overbought reading. However, a signal isn’t generated until the indicator crosses below 100. The last signal was a sell 11 period(s) ago.

MACD

The Moving Average Convergence/Divergence indicator (MACD) gives signals when it crosses its 9 period signal line. The last signal was a buy 15 period(s) ago.

Rex Takasugi – TD Profile

FOREX EUR= closed up 0.000 at 1.129. Volume was 93% below average (consolidating) and Bollinger Bands were 47% wider than normal.

Open    High     Low     Close     Volume
1.129   1.132    1.128   1.129     8,006

Technical Outlook
Short Term:        Overbought
Intermediate Term: Bullish
Long Term:         Bullish

Moving Averages: 10-period    50-period     200-period
Close:           1.12         1.09          1.10
Volatility:      7            9             9
Volume:          108,505      111,133       85,414

Short-term traders should pay closer attention to buy/sell arrows while intermediate/long-term traders should place greater emphasis on the Bullish or Bearish trend reflected in the lower ribbon.

Summary

FOREX EUR= is currently 2.5% above its 200-period moving average and is in an upward trend. Volatility is relatively normal as compared to the average volatility over the last 10 periods.

Our volume indicators reflect very strong flows of volume into EUR= (bullish). Our trend forecasting oscillators are currently bullish on EUR= and have had this outlook for the last 12 periods. Our momentum oscillator is currently indicating that EUR= is currently in an overbought condition.

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