EUR/USD Forecast: 1.0800/40 likely for this week
|The Brexit shock has left investors disoriented when it comes to the EUR/USD pair, as after plummeting some 500 pips, the pair entered a consolidative stage of mere 200 pips, between 1.1000 and 1.1189, the post-Brexit high. Still, the bearish tone is quite clear as after some consolidation during the previous week, the pair has edged lower during this one, barely holding around the lower end of the range, the 1.1000 critical psychological support.
US data has continued to beat expectations, supporting the case for solid growth in the world's largest economy. Wall Street soared to record highs, and despite a sharp intraday retracement on Thursday, indexes hold on to gains, as confidence among investors is strong. It’s quite a contradictory scenario, as usually, strong data suggest that the FED is closer to raising rates, and therefore stocks tend to fall. But in this particular case, the US Federal Reserve is hardly expected to act this year amid global woes, which means that, as an exception to the usual behavior since the 2008 crisis, the dollar can rally alongside Wall Street.
And in fact, the greenback is stronger against all of its major rivals, but the EUR/USD pair refuses to give up. European data has been generally softer, with only German figures resulting up beat. So why is the pair so reluctant? To be honest I don't have the answer. Probably, investors were waiting for Draghi to jump into the easing path. The fact that he didn't has only fueled the ongoing uncertainties.
In the meantime, the pair is unable to fall, but the upward potential is quite limited in the current environment, as there are no reasons for an EUR rally, nor technical, neither fundamental. The pair seems nowhere near of leaving its lethargy right now, as in fact, it has been ranging since March 2015, of course, within a wider range, but range at the end. There's a major support area, clear in the weekly chart around 1.0800/40, and it would take a clear break below the level to talk about a bearish continuation. Luckily, next week, the pair can reach it.
Technically, and according to the daily chart, the risk is towards the downside, as the 20 SMA maintains a strong bearish slope after crossing below the 100 and 200 SMAs, while the Momentum indicator faltered around its mid-line before resuming its decline and the RSI indicator heads lower around 39. There's an immediate support at 1.0960/70, followed by 1.0910, the post-Brexit low. Below this last, the long term mentioned region at 1.0800/40 is the next probable bearish target.
The 1.1100 level is the immediate resistance, with some steady gains above it favoring a test of the higher end of the range, 1.1190. Gains beyond this last are not seen, but the pair can gain momentum on a break above it, with scope then to extend its rally up to the 1.1250 region, as the most.
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