EUR/USD: Euro continues to show resiliency
Recently, we have seen the Euro get pummeled daily, but the one thing that Friday showed us was that there is a lot of resiliency and life in the common currency. Early in the US session, the European Central Bank board member Benoit Coeure suggested that there was a possibility of a new TLTRO, sending the currency lower as it is another form of easing. There is also talk of the slowdown in the European Union surprising the ECB a bit, thereby suggesting that the central bank may remain rather soft. At roughly 10 AM New York time, the machines sold off the Euro.
However, we have seen resiliency below the 1.13 level, and Friday was no different. By the time we closed out trading during the trading session on Friday, we formed a nice-looking hammer. This, of course, is a technically significant bullish candle, and therefore I think that the buyers will more than likely jump in and continue to push this market on dips. It’s unlikely to be a market that explodes to the upside, but when you look at the longer-term chart, it’s obvious that the area is significant support in what has been a nice consolidation range.
The Fed Reserve Talking in Dovish Terms
The Federal Reserve on the other side of the trade is very likely to remain soft, and there have been moments where we have heard Federal Reserve members talking about the economy in very dovish tones recently, so that continues to soften the greenback. With the type of recovery that we have seen on Friday, it’s very likely that we are building a bit of a base in the Euro right now and will see the dips be bought on short term charts, while a break above the 1.1350 level could kick off a move towards the 1.1450 level, possibly even the 1.15 level over the next several sessions. This could be further exacerbated by the fact that there is a trend of cutting growth forecasts in the United States. If that’s going to be the case, it only adds more fuel to the fire of a loose Federal Reserve.
At this point, it’s essentially an argument between two very soft currencies. While the US dollar has shown strength as of late, we are starting to see cracks in the ice, and one would have to wonder how long it will be before global slowdown headwinds start to affect the US economy. Beyond that, it looks as if the political situation in the United States isn’t getting any better, and ultimately this is going to be an issue occasionally as well.
Looking at the Historical Charts
When you look back at historical charts, we are at extraordinarily low levels. This is something that cannot be disputed as the beginning of the Euro opened at 1.18 all those years ago. Essentially, when you are trying to trade the Euro you are trading Germany. Granted, we also have concerns about the Brexit, which of course still leaves a lot of questions out there. It is because of this perhaps that the Euro will be able to break above the 1.15 level anytime soon. I believe that the future is going to look very much like the last couple of months, but the main catalyst might surprisingly be a resolution to the United Kingdom leaving.