Forex Analysis – EURUSD
This week is a big week for the EURUSD as we have inflation data from the eurozone ahead of a week full of Tier 1 data out of the USA. Today will be a quiet trading day as the UK and USA are both on bank holiday, so the compressed trading week should see some volatility arrive Tuesday morning, especially if EU inflation data beats market expectations.
The week is bookended by the Non-Farm Payrolls which are expected to rebound significantly from last month’s terrible 266k, but we will have received ISM Manufacturing and Non-Manufacturing data in the days in-between.
The EURUSD has been within an uptrend for several weeks now and is approaching the 2021 high of 1.23490 printed in January. The monthly chart highlights that the price action is nearing the top of a range which found resistance back in 2018 from previous support zones that formed in 2010 and 2012. For prices in the single currency to get back into the ranges above 1.2500 it is going to take a considerable depreciation in the US dollar.
However, unlike the time the EURUSD reach its highs in 2018 which shows the momentum had been to the downside for so long that the monthly 20, 50 and 200 ema’s were stacked below each other. This time they are showing a bullish momentum, which combined with decent price action can lead to higher prices more easily. The price action in May has nearly closed above the previous 3 months levels so effectively undone the corrective wave from the high and the chart pattern looks very bullish for a continuation.
With elevated oil prices this last 12 months analysts will look to EU core CPI to move higher to 0.8% y/y, and the headline inflation to rise to 1.9% y/y, as energy prices contribute more than 1ppt to y/y HICP. Though it is doubtful that the same kind of reopening inflation surge in Europe will occur as seen in the US. The European medical situation continues to improve, underpinning expectations of accelerating GDP growth through the summer.
Flows into Europe have also picked up as economic activity rises and maybe as expectations for higher corporate tax rates in the US grow. The last week was a busy one for ECB speakers, who were mainly on the dovish side, with a few speakers signalling that they would prefer to leave the current pace of the emergency pandemic purchases (PEPP) unchanged into Q3.
On a daily EURUSD chart the March low to May high is in a very controlled range with the daily 50 ema never crossing under the 200 ema. The 20 and 50 ema have provided dynamic support for the last month so should we close below the 50 ema, that would be the first signal that the bulls were running out of energy.
The ActivTrader sentiment indicator has shown that the retail traders on the platform have been bearish for the whole run up and that they are currently 61% still bearish. In their favour the RSI is still showing divergence in the indicator’s peaks to the rise in price action which signals a slowing momentum. If we do get a large spike in price towards the 1.23490 level, the RSI indicator may break above the trend line and an RSI reading of more than 63 would be a bullish signal for me for a continuation higher.