EUR/USD - ‘Relative political stability in the Eurozone’ supports further gains

EUR/USD extended the three-day winning streak in Asia to a high of 1.1115; its highest level since November 9.

Is Eurozone a safe haven?

The Eurozone is increasingly looking like a new safe haven for the investors, courtesy of Macron’s victory in the French Presidential election and heightened odds of Chancellor Merkel winning the German elections later this year.

The timing could not have been better for the EUR bulls, given the investors are losing the faith in the Trump Presidency. Moreover, the political scene in the US is deteriorating every other day. The Comey memo scandal is the latest of the many that have made the White House a hot mess.

On the economic front, the Eurozone is looking equally strong if not better than the US. The data released yesterday showed the Eurozone economy expanded 0.5% q/q in the first quarter. The German economy surged 0.6% q/q or 2.4% in annualised terms, which is well above the US GDP.

The point worth noting is the both hard data and soft data in the Eurozone continues to shine, while in the US it is only the soft data that is holding up well.

European stock funds attract near-record cash - Lipper

US based stock funds that invest in Europe are witnessing record inflows. Reuters Lipper data released last Thursday showed “the European stock funds in the United States collected $1.7 billion in the week ended May 10”.

The US data (retail sales, inflation) released over the last one week were relatively weak. Meanwhile, the political scene has only worsened. Hence, the European stock funds are more likely to have witnessed a further rise in inflows this week.

No wonder, the EUR is on the tear and may continue to scale fresh multi month highs if the US political scene in the US worsens.

EUR/USD Technical Levels

The daily RSI is overbought, while the weekly RSI is sloping upwards and is well short of the overbought territory. EUR bulls need to be cautious in the short-run, although weekly RSI suggests the doors remain open for fresh multi-month highs.

The immediate resistance is seen at 1.1123 (Aug, Sep 2016 low). A daily close above the same would expose 1.1202 (23.6% Fib retracement of May 2014 high - Jan 2017 low) and 1.1299 (Nov 2016 high).

On the lower side, major support is seen at 1.10 (zero figure). A break lower would signal a short-term top has been made and could yield 1.0951 (last month’s high) and 1.0853 (monthly 10-MA).