EUR/USD Forecast: Set to break out of the wedge, but where to? Brexit and stimulus hold the keys

EUR/USD has been hovering above 1.21 as Brexit headlines seem more gloomy.
Progress in stimulus talks is eyed after Mnuchin entered talks.
Wednesday's four-hour chart is pointing to a narrowing wedge.

Yohay Elam FXStreet

Trading in a narrowing wedge has its limits – and when it leaves that triangle, it tends to fly. EUR/USD traders are bracing for volatility, but where will it go to? Two sets of talks hold the key.

Brexit: All eyes are on a dinner table in Brussels at 19:00 GMT – where European Commission President Ursula von der Leyen meets UK Prime Minister Boris Johnson. The leaders meet as negotiations hit the same obstacles again – fisheries, governance, and a level playing field.

Hopes for a British compromise on fisheries and an EU one on an LFP helped lift the pound from its lows, but without clearer reports of a breakthrough, both sterling and the euro are stuck. Further reports from the pre-summit talks will likely cause choppy trading before a full explosion once the meeting concludes. A significant move forward would boost the common currency while a collapse of talks would cause a breakdown.

Stimulus: US Treasury Secretay Steven Munchin said that 90% of the stimulus package details will be completed on Wednesday – a positive sign that joins the high-ranking official's jump into talks. However, it is always about the remaining 5% or 10%.

Markets will not need to wait for a specific time to hear updates. Both Republicans, who insist on liability waivers, and Democrats, who want funds for states, are likely to talk to the press and move markets. The safe-haven dollar would fall if talks make progress and rise if they hit another wall.

These two sets of talks send coronavirus developments to the background. COVID-19 statistics hit records in the US and remain high in Germany. On the other hand, investors await the US Food and Drugs Administration's authorization to use the Pfizer/BioNTech vaccine already administered in Britain.

EUR/USD Technical Analysis

Euro/dollar is trading in a narrowing triangle or wedge. Technical textbooks suggest that once the pair chooses a direction, it should trend strongly in that chosen path. Currently, EUR/USD is near the bottom end of the triangle. Break or bounce at support? The answer will come shortly.

Support awaits at 1.21, which is the daily low, followed by 1.2080 and 1.2005.

Resistance is at 1.2150, the daily high, followed by 1.2177 and 1.22.

Three reasons for the massive EUR/USD breakout and big levels to watch

Premium

You have reached your limit of 3 free articles for this month.

Start your subscription and get access to all our original articles.

Subscribe to Premium Sign In

Author

Yohay Elam

FXStreet

Yohay is in Forex since 2008 when he founded Forex Crunch, a blog crafted in his free time that turned into a fully-fledged currency website later sold to Finixio.

GBP/USD clings to gains near 1.3400

GBP/USD retreats after reaching a three-week high above 1.3430, challenging the 1.3400 yardstick on Thursday. Although easing political uncertainty in the UK helps the quid limit its downside, escalating tensions in the Middle East support the Greenback, keeping Cable under scrutiny.

EUR/USD: Daily gains appear capped by 1.1450

EUR/USD keeps the recovery in place and looks to consolidate its gains north of 1.1400 the figure at the end of the NA session on Thursday. The pair’s move higher appears in tandem with a modest pullback in the US Dollar despite geopolitical concerns in the Middle East remain unabated.

Gold flirts with two-day highs, approaches $4,130

Gold stages a modest rebound on Thursday, setting aside a three-day losing streak and managing to surpass the $4,100 mark per troy ounce. However, steady geopolitical tensions have revived concerns over persistently high global inflation, reinforcing expectations of higher rates across the board and somewhat curtailing the yellow metal’s upside potential.

AAVE eyes $100 after Stable Vaults launch

Aave edges higher above $90.00 at the time of writing on Thursday, amid broader price stabilization in the crypto market. The company has announced Stable Vaults, a platform that allows businesses to integrate fixed-rate stablecoin yield, mildly lifting sentiment in the ecosystem.

Japan may be changing its Yen strategy, but markets don’t look scared

Japan may be changing its intervention playbook, but that might not be enough to rescue the battered Yen. With USD/JPY hovering at four-decade highs, the currency’s weakness is being driven less by speculative pressure and more by a powerful structural force: the wide US-Japan rate gap.

Bye, forward guidance: How to trade when central banks choose silence

Central banks have spent years telling markets what might come next. Now, traders face the possibility that they say a lot less. From the Federal Reserve to the European Central Bank and the Bank of England, policymakers are pushing back against forward guidance.