EUR/USD Bottoming as Economic Sentiment Continues to Improve

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EUR/USD Bottoming as Economic Sentiment Continues to Improve

The EUR/USD has been consolidating since falling to 1.11 after the ECB’s QE announcement. It has since weathered some bouts of USD-strength and continued to consolidating above 1.1260. Today, after ZEW economic sentiment Data, the EUR/USD is looking for further consolidation, bullish correction.

German ZEW Economic Sentiment (Feb): 53.0; forecast: 55.4; previous: 48.4
Eurozone ZEW Economic Sentiment (Feb.): 52.7; forecast: 51.3; previous: 45.2
zew economic sentiment feb.
(click to enlarge; source: forexfactory.com)

For both Germany and the Eurozone, sentiments improved for the 4th consecutive month in February, suggesting that sentiments have bottomed and are improving fast. This can be largely attributed to the decline of oil prices, which has had positive effects so far (unless you’re an oil rigger). Also, the announcement of QE marked a possible turning point for the EUR/USD since it has been already pricing in the announcement for quite some time.

Of course, other issues such as the situation in Greece, and the conflict in Ukraine will keep the euro from becoming bullish, but for now, the EUR/USD might be entering into a medium-term consolidation.

EUR/USD 4H Chart 2/17
eurusd 4h chart 2/17
(click to enlarge)

The 4H chart shows that price action is starting to anchor upwards. Today, price essentially bounced off the 100-, and 50-period SMAs after crossing above them. This is called a bullish slingshot, and suggests furhter upside.

In the short-term, the 1.1525-50 area is the resistance. It was a former support area, and where the 200-period SMA resides. The fact that consolidation anchored above 1.1260, and not 1.11 suggests there is upside risk above 1.1530, perhaps towards the 1.1650 area, the resistance of the a brief consolidation in January.

EUR/USD Daily Chart 2/17
eurusd daily chart 2/17
(click to enlarge)

The daily chart shows that above 1.1650, the next resistance will be in the 1.1750-1.18 area, which represents common price in another brief consolidation and also where the 50-day SMA resides.

We should also be mindful of resistance when the daily RSI approaches 60, and when the 4H RSI shows a bearish divergence in the 70-80 area. After all the overall trend is still bearish, and the fundamentals does not suggest the euro should be stronger than the greenback, though some short-term maybe even medium-term correction could be due.

So, for now, let’s hold a bullish outlook but limit it to 1.18. A conservative outlook would limit it to 1.1650.

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Fan Yang has been a professional forex trader and analyst since 2007. He specializes in technical analysis and has a Chartered Market Technician designation since 2011. He was the chief technical strategist at CMSFX He was also the founder and chief currency strategist at FXTimes Over the years, Fan has not only been a trader and analyst but also an educator. As a proponent of both technical and fundamental analysis in trading, Fan advocates simplicity and discipline as key factors in making trading decisions when faced with so many "clues" and "signals". Currently Fan Yang is the chief currency analyst and webinar instructor at forexminute.com.