- The EUR/USD closed well above 1.17 yesterday, signaling a continuation of the rally from August lows.
- The bullish technical breakout is backed by a drop in the demand for the EUR puts (sell EUR).
- An above-forecast Eurozone preliminary PMI releases could accentuate the bullish case.
The easing trade tensions and the resulting broad based sell-off in the USD pushed the EUR/USD pair to a 2.5-month high of 1.1785 yesterday.
More importantly, the currency pair convincingly closed above 1.17, a level which was proving a tough nut to crack earlier this week, signaling a continuation of the rally from the August low of 1.1301.
Further, the bullish breakout pushed up the one-month 25 delta risk reversals to -0.65 – the highest level since Aug. 1 – indicating the implied volatility premium for the EUR puts (or demand for the EUR puts) is at seven-week lows.
The options market data indicate the investors are expecting the common currency to extend gains further and hence are likely unwinding bearish bets.
Looking ahead, the EUR could rise above 1.18 if the preliminary Eurozone PMI numbers, scheduled for release today, beat estimates and the risk assets remain well bid.
At press time, the EUR/USD is trading at 1.1780.
EUR/USD Technical Levels
Resistance: 1.1791 (July 9 high), 1.1840 (June 6 high), 1.1852 (June 14 high)
Support: 1.1751 (July 23 high), 1.1716 (5-day moving average), 1.1662 (200-day moving average)
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