We can describe EUR/USD in May and June simply as this: A bearish swing from 1.3993 to 1.3503 in May followed by sideways price action in June. Before the 6/25 session, the pair has been trading in a triangle pattern as seen in the 4H chart. Today, EUR/USD broke above the triangle resistance, as well as the 200-simple moving average in the 4H chart. The RSI has tagged 70 and held above 40. These clues are building the case for a bullish reversal against the downswing in May.
(eurusd 4h chart, 6/26)
The triangle breakout has exposed the 1.3675 June high, as well as well as the 1.3690-1.37 area, which contains the 38.2% retracement level. As we get started with the 6/26 Asian session, the pair has pulled back, but is so far keeping the bullish breakout in play by respecting the broken trendline and 200-4h SMA.
A break above 1.37 will expose the 1.3750 (50% retracement), and 1.38-1.3806 (61.8% retracement) levels. When you look at the daily chart, you see that the 100- and 50-day simple moving averages reside in that range. The bullish signal provided in the 4H chart should be limited in outlook to the 1.37-1.3750 area.
(eurusd daily chart, 6/26)
The rally today can be attributed to both positive German data and disappointing US data. While the GfK German Consumer Climate looking ahead to July came in at 8.9, which improves upon the 8.6 reading in the previous month. This gauge of consumer confidence is already at pre-crisis levels. Meanwhile, US Q1 GDP was revised to an annualized rate of -2.9%. This was a sharp revision from the 2nd estimate of Q1 GDP at -1.0%. Also, durable goods orders for May came in at -1.0%, which was much worse than economists’ mean forecast around -0.1%.
While the consumer climate reading for Germany does not have any significant monetary policy impact, the GDP revision and the durable goods orders do. The poor US data suggest the FOMC will likely remain dovish, which means the USD will likely be pressured until we steer clear of significant negative data in housing, jobs, retail, and inflation.
The weight on USD should allow EUR/USD to keep the 2014-low and possibly stabilized around the middle of the year’s range, which would be just above 1.3750. This is another reason we should limit the bullish outlook to this level for now.
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