EUR/USD Forecast: Levels to watch after Brexit-induced uptrend breakout
|- EUR/USD has surged to six-week highs after the UK and EU announced a Brexit deal.
- Further Brexit developments and US-Sino relations are set to dominate trading.
- Thursday's four-hour chart is showing marginal overbought conditions.
"White smoke" tweeted one reporter in Brussels and sent the pound racing higher – EUR/USD follows. The common currency has hit the highest since late August. The EU and UK have announced a Brexit accord after intense negotiations. This accord removes the threat of a no-deal Brexit which would have hurt the euro-zone economies.
The ball now passes to parliament – Prime Minister Boris Johnson aims to have parliament approve the agreement in an extraordinary session on Saturday. It is still unclear if he is able to muster support – the Northern Irish Democratic Unionist Party remains opposed and is critical for a successful passage. Brexit headlines are set to rock GBP/USD, but for EUR/USD only the most important events are set to have an impact. The odds of the House of Commons approving the deal will likely have the greatest impact.
US-Sino relations have soured again, now due to a US demand to report movements of Chinese diplomats. The move follows a similar limitation for American diplomats in China. The story adds to tensions as low-level trade talks continue.
The US Dollar remains on the back foot following the publication of weak Retail Sales data on Wednesday. Headlines sales unexpectedly dropped and the all-important control group remained flat. The US consumer has been keeping the economy going, and any slowdown is of worry. A big bulk of US data awaits traders later in the day: Building Permits, Housing Starts, and Industrial Production are among the figures.
Robert Kaplan, President of the Dallas branch of the Federal Reserve, said that he supported the previous two rate cuts but sounded reluctant about cutting rates again later this month. Nevertheless, the odds of another rate reduction have risen. Three of his colleagues will be speaking out later today. John Williams of the New York Fed is the most significant speaker.
Brexit and US developments are set to overshadow concerns about the health of the German economy, which have been prominent earlier this week.
EUR/USD Technical Analysis
EUR/USD has risen above the 1.11 level and above the uptrend resistance line that capped it since early October. While momentum remains to the upside, the Relative Strength Index is flirting with 70 – indicating overbought conditions. A correction may be seen before the upside momentum resumes.
Resistance awaits at 1.1165, which was a high point in late August. Next, we find another peak from that month at 1.1190. 1.1225 held EUR/USD down in late August.
Support awaits at 1.1115, which was September's high. It is closely followed by 1.1067, which was a stubborn cap in September. Lower, 1.10 was separated ranges earlier in October.
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