EUR/USD: Make Or Break At 1.1495
Euro Hits 6 1/2 Month Best Against US Dollar, 1.23 Now Forecast
“This is a major break, as previously any moves to the 1.14 region have been quickly thwarted.” - Lloyds Bank.
The euro has traded to 1.1542 against the US dollar and recorded an eight month best in doing so.
The moves higher come amidst rising political criticism against the European Central Bank’s (ECB) negative interest rate policy; widely credited as being behind the euro’s long-term stay below the 1.20 level.
President Mario Draghi reiterated at a conference at the start of May that that there is, “no alternative to continued expansionary policies until the slack in the economy has been reduced.”
Perhaps in the past similar words from the President of the ECB would have triggered euro selling, but with markets are now of the opinion that the central bank has gone as far down the interest rate cutting route as is possible.
Thus, the bet is the ECB will be unable to propagate further exchange rate weakness going forward.
US Dollar Not Helping Itself
Of course this is a binary world and aiding the EUR to USD conversion’s journey higher is a tepid United States economy.
A data heavyweight - the ISM manufacturing index – was published yesterday.
Against the expectations, the index dropped to 50.8 index points in April.
Previously, the final figures on purchasing managers’ indices in the euro area (industry, overall 51.7 index points) came in a tad better than in the provisional version.'
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EUR/USD has been trapped in a broad sideways range since basing in March 2015, notes Credit Suisse.
"For now, our bias is for price and retracement resistance at 1.1495 to ideally cap – the October 2015 and April 2016 highs and 78.6% retracement of the August/December decline – with a break below 1.1144/06 needed to mark a fresh top in the range, for a slide back to 1.0883/22 initially.
Above 1.1495 would suggest strength can extend back to the 1.1714 August 2015 high, and more likely 1.1808 – the 38.2% retracement of the 2014/2015 collapse," CS argues.
"With a multi-year top in place we remain of the view this range will eventually be resolved to the downside, for a move to our parity target, but there is a clear risk we could yet see further lengthy ranging first, even a deeper recovery," CS adds.
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