After spending more than 48 hours between 1.332 and 1.375 since last Friday, prices finally broke higher, hitting above 1.34 and reached a high of 1.345 yesterday. Interestingly, there wasn’t any major economic releases from Europe, and risk appetite seems to be lower during the European trading session when price reached 1.345. Germany DAX gaped lower on open and stayed around there for the rest of the day, while UK FTSE100 did manage to trade up slightly following the sharp gap lower, but still remain down by 0.19%. Hence we are hard pressed to believe that EUR became stronger due to improving economic outlook from the Euro-Zone.
What about US front? EUR/USD could rally due to a weakness in USD. In this regard, it is possible that USD is weakening considering that 10Y T-Note yields actually came off slightly yesterday, suggesting that recent taper fears have been lifted slightly. This would naturally sent USD weaker and thus EUR/USD higher, but is it a good explanation for a 100 pips movement from 1.335 to 1.345? It seems that there must be some element of speculation in this current rally.
It should also be noted that Germany Finance Minster Schaeuble admitted for the first time yesterday that Greece will require a 3rd bailout, and market did not even battered an eyelid. Granted that this is not really a huge reveal considering that nobody expected Greece to be high and dry to begin with. The 3rd bailout quantum needed is also expected to be much lower than the previous 2, and is expected to sustain Greece between 2014 – 2016, the supposed timeline when recovery should have happened. Nonetheless, the lack of any bearish reaction suggest that market could be irrational, enhancing the case that we are running purely on speculation.
From a technical point of view, price is currently consolidating above 1.34 round figure. Stochastic readings suggest that a movement back toward 1.34 or perhaps 1.375 support may be possible as a bearish cycle is currently underway. However, should price manage to stay above 1.34 for the next 6-7 hours, price will be able to find support from the Kumo which has been a decent support this week. If past trends continues, the Kumo will be able to help support a move back towards 1.345 once again.
From the daily perspective we can see price bouncing off Channel Bottom in search of Channel Top as the next bullish target. However, given that Stochastic readings are currently extremely close to Overbought region, it seems less likely that a breakout of Channel Top may be possible. Instead, a move back towards 1.34 and confluence with Channel Bottom in the next few days remain possible even if 1.35 has been tagged. Furthermore, a pullback from Channel Top scenario fits nicely in the fundamental narrative which expects a significant bearish move due to current bullish speculation.
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