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Midweek Review: Euro to US Dollar Forecast to Rise to 1.1200 Cap - PSL

MAY 17, 2017

Written by Joaquin Monfort

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EUR/USD has surged on a combination of disappointing US economic data (USD negative) and reports the European Central Bank (ECB) might decide to wind up their QE program sooner than previously thought (EUR positive).

The pair has ripped clear through the 1.1000 watershed and out of a rising channel.

It is now trading in the lower 1.11s and we think it will probably continue up to the 1.1180-1.1200 region where further gains may be capped by both the monthly pivot at 1.1188 and then a long-standing resistance level 1.1200.

The RSI indicator in the lower pane of the chart (below) is overbought (circled) and therefore suggests bullish caution as the pair may be reaching a temporary top.

The official interpretation is that when RSI is overbought traders should not add to long positions.

Commerzbank’s technical analysts Karen Jones is even more bullish than we are, advocating that the pair will rise to the 1.1300 handle.

“EUR/USD’s near term outlook is on the offensive: the Euro breached the 1.1040 recent high and saw another strong rally. It has potential to reach the 1.1300 November 2016 high,” said Jones in a note to clients.

EURUSDMay17

Looking now at big data releases towards the back end of the week we note that the Philadelphia Fed Manufacturing Index is the next major release, and it is out at 13.30 on Thursday, May 18. The data is expected to show activity falling to 19.5 from 22.0.

Commentary from federal reserve officials including James Bullard and from ECB governing council members Peter Praet and Draghi also peppers the calendar in the second half of the week.

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