|

EUR/USD - Bulls in control ahead of the ECB

  • Recent price action indicates the EUR could re-test the yearly highs above 1.25.
  • Focus on ECB's language on the ECB.

The EUR's move above the double top neckline of 1.2201 on Mar. 1 trapped bears on the wrong side of the market. In the subsequent days, the common currency extended gains and rose to a high of 1.2446 (yesterday) as fears of trade war saw investors ditch the greenback in favor of the currency backed by hefty current account surplus.

As of writing, the EUR/USD pair is holding just above 1.2402 - 61.8 percent Fibonacci retracement of Feb. 16 high - Mar. 1 low.

The one-month 25 delta risk reversals turned positive earlier this week, indicating the implied volatility premium for EUR calls is higher than the implied volatility premium for the EUR puts, i.e. the move from 1.2154 to 1.2446 has revived demand for the bullish bets (calls).

Further, the momentum studies - 5-day moving average (DMA), 10DMA, and 50DMA are on the rise, indicating a bullish setup. So, it appears the EUR is all set to re-test the yearly high of 1.2556 set on Feb. 16.

That said, the ECB language on QE could either accelerate or slow down the EUR's ascent towards 1.2556. Kathy Lien from BK Asset Management says, "the ECB is widely expected to leave monetary policy unchanged and the only question is how quickly they will start talking about unwinding Quantitative Easing and raising interest rates."

The December policy statement had said a review of policy language may be warranted in early 2018. So, if the language remains unchanged, the EUR could depreciate somewhat, however, investors would then start pricing-in a change in April. So, the drop will likely be short-lived.

EUR/USD Technical Levels

A move above 1.2446 (previous day's high) would allow a stronger rise towards 1.2538 (Jan. 25 high) and 1.2556 (Feb. 16 high). On the downside, failure to hold above 1.2385 (support on 1-hour chart) could yield a sell-off to 1.2355 (1-hour 100-MA) and 1.2328 (Mar. 6 low support on 1-hour chart).

 TREND INDEXOB/OS INDEXVOLATILY INDEX
15MBullishNeutral Expanding
1HBearishNeutral Low
4HNeutral Shrinking
1DBullishNeutral Low
1WBearishNeutral High

Author

Omkar Godbole

Omkar Godbole

FXStreet Contributor

Omkar Godbole, editor and analyst, joined FXStreet after four years as a research analyst at several Indian brokerage companies.

More from Omkar Godbole
Share:

Editor's Picks

AUD/USD holds firm near 0.7000 after Chinese inflation, trade data

AUD/USD stays firm near 0.7000 in Wednesday’s Asian session, picking up some bids after China's mixed inflation and upbeat trade data. CPI rose less than expected in September, while PPI inflation picked up. Meanwhile, the Chinese trade surplus unexpectedly widened in September. The pair remains underpinned by a broadly subdued US Dollar, despite the Middle East escalation, as focus remains on US CPI data.

USD/JPY consolidates near 158.50; looks to US CPI for fresh impetus

USD/JPY stays range-bound near 158.50 in the Asian session on Wednesday, with looming intervention risks supporting the Japanese Yen and capping upside amid a softer US Dollar. However, geopolitical uncertainties act as a tailwind for the safe-haven USD and the pair. Traders also seem hesitant ahead of the release of the latest US inflation figures.

Gold extends slide below $4,100 after hot US inflation

Gold extends losses in the American session on Wednesday, following the release of hotter-than-anticipated US CPI. The CPI figure shows that September inflation rose 3.7% YoY, boosting demand for the US Dollar and weighing on the bright metal.

XRP recovery faces headwinds despite Ripple and Meritz Securities' tokenization push in Korea

XRP trades above $1.36 as bulls gather momentum to face a critical supply range toward $1.40. Ripple and Meritz Securities partner to explore institutional custody and tokenization services for South Korea’s capital markets.

A historic Treasury rout is underway. Investors are buying it at record size

Long-term Treasury yields climbed to their highest since 2002 in early October, and investors are taking record shares of the government's new debt at auction. The selling is coming from investors protecting other bets, not from buyers walking away.

Has Bitcoin really escaped the macro forces it was built to fight?
Over 17 years ago, Satoshi Nakamoto designed Bitcoin (BTC) on the back of a global financial crisis as an alternative to the global monetary system outside the control of central banks, governments and traditional intermediaries. This raises a key question: has Bitcoin really become independent of the macroeconomic forces it was built to challenge?