EUR/USD trading is often choppy, especially when it is confined to narrow ranges. When the pair is in trend, past technical lines, even those from 2003, are respected quite nicely.
The euro-zone economies are growing at a robust pace in 2017. Unemployment is falling and even core inflation is finally rising. All this has led to optimism that sent the euro higher.
The European Central Bank is set to trim its bond-buying scheme (QE) in early 2018. Draghi tried to talk down the currency but to no avail. A weaker euro makes exports more attractive and pushes imported inflation higher.
The victory of Emmanuel Macron in France unleashed the upside in the pair: the wave of populism has probably peaked. Nevertheless, politics remain problematic, especially with the fractured parliament in Germany. and this weighs on the euro.
In the US, hopes for fiscal stimulus faded early in the year, but are now on the rise again, with Trump’s tax plan. The Federal Reserve has maintained its plan for three rates hikes in 2017 despite lower US inflation.
We find very interesting the technical picture on EUR/USD: the daily candle closed with a hammer pattern on Friday, suggesting a potential reversal to the upside. This is strange if you think at the high risk Catalan crisis which could push EURO lower.
However, if we don’t trade a technical pattern….then what?
The 4h chart is also showing an interesting bullish divergence with the RSI. Another reason to look to buy the EURO.
For this week we are long EUR/USD with SL under last week’s low and target 1.18300 – that’s the 38.2% Fibonacci Retracement of the last fall.