EUR/USD - Poised for first weekly close above 1.10 since late Oct, 2016

EUR/USD looks set to close the week above 1.10 handle for the first time since late October on the back of political uncertainty in the US, fading Fed June rate hike bets and outflow of money from the US-focused stock funds.

The spot jumped above 1.10 handle on May 16th and extended gains to a six-month high of 1.1172 (previous day’s high) before a minor technical correction pushed it back to 1.11 handle.

The spot remained flat lined around 1.11 levels in Asia amid lacklustre action in the treasury yields.

Political uncertainty is here to stay

The White House turmoil is here to stay as Comey will most likely testify before the Senate committee on Wednesday. The Washington Post reported earlier today that Comey will also carry documents related to the investigation into Russia’s meddling in the 2016 US elections.

Meanwhile, the President’s budget due on Tuesday could be met with rejection. Trump’s ambitious plan to revive economy via tax overhaul and spending cuts is being called unrealistic.

Focus on Fed speak

The American dollar has been battered this week as markets believe the political turmoil will force the Fed to delay the rate hike plans. The CME Group FedWatch’s odds of a June hike did drop to 64% on Wednesday.

However, Fed’s Mester did not deviate from her call for further US interest rate hike. Consequently, the rate hike odds moved back to 73%.

The US dollar may get a much needed shot in the arm if Fed’s Bullard sounds hawkish today. Profit taking on USD shorts ahead of the weekend could also weigh over the EUR/USD.

Still, the pair looks set to close above 1.10 handle. Moreover, a 100-pips drop from the current level of 1.11 appears unlikely given the lingering political concerns. The Eurozone preliminary consumer confidence due in the US session could deliver a positive surprise and strengthen the bid tone around the EUR.

EUR/USD Technical Levels

A break above 1.1125 (1-hour 50-MA) would expose 1.1172 (weekly high) and 1.12 levels. On the downside, a breach of 1-hour 100-MA level of 1.1066 could yield a pull back to 1.10 handle. Only a daily close below 1.10 would signal a top has been made at 1.1172 and could yield a fresh sell-off to 1.0906 (Mar 27 high).

The daily RSI is turning lower from the overbought region, although the weekly RSI stays well above 50.00 and is sloping higher. Thus, the indicators suggest dips are likely to be short lived.

  TREND INDEX OB/OS INDEX VOLATILY INDEX
15M Bullish Neutral Expanding
1H Bearish Neutral Low
4H Bullish Neutral Shrinking
1D Bullish Neutral Low
1W Bearish Neutral Expanding