Market Analysis

Casting A Technical Eye Over Euro/Dollar

There are two old adages in the foreign exchange market that perhaps have a particular resonance when a currency pair could be described as trading with a degree of euphoria. The first adage is that it is never wrong to take a profit. The second is that a trader should always expect to leave something on the table for the next person. Picking tops and bottoms for profit takes happens only rarely in trading. Thursday’s trading pattern in euro/dollar arguably reflects the wisdom of both adages given the way the pair soared through $1.1750 (taking out option barriers in its wake) before smartly reversing. Some might discern a degree of euphoria in the way the euro has recently moved higher. Others might see Thursday’s price action as indicative of a thinning summer market. Certainly, from an analysis perspective, when a currency moves as quickly as the euro has done recently versus the dollar it tends to leave analysts scrambling and forecasts become bolder. Traders might recall how after the June 2016 devaluation of sterling following the British electorate’s vote to leave the European Union, there was plenty of talk of cable (GBPUSD) hitting $1.10 or even parity. And yet here we are back at $1.30. While too astute to get caught by a wild forecast ThomsonReuters IFR (TRIFR) could write on Thursday that “EUR/USD bulls are setting their sights on $1.2167–50% Fibonacci of the 1.3995-1.30540 drop (2014-2017) after taking out 1.1736, the 38.2% retrace of the same fall to hit a new 2017 high at 1.1777.”

Yet TRIFR also wrote that “the task for [euro] bulls now is to register a close above the 1.1736 at the end of July to pave the way to that 1.2167 level. EUR/USD is persistently trading well above the 30-month upper Bolli band currently at 1.1595 level, an unusual pattern which is indicative of a market heading to a new equilibrium. Fourteen-month momentum is likely to register a positive reading for the first month since January, highlighting the bullish outlook.” But, and the but is important, TRIFR feels that “if the market fails to register a monthly close above 1.1736, this will suggest that medium-term bulls are running out of steam.” Totally-convinced euro bulls might think the latter part of TRIFR’s commentary is superfluous. And they may be right. Others might consider TRIFR’s identification of $1.1736 as a key point to monitor on a monthly close is worthy of note. It’s a matter of choice.
Written by Neal Kimberley, External Currency Analyst.