The EUR/USD Pair Is On The Verge Of Breaking Out
Contrary to some very bullish signals issued a few weeks ago, the Dollar and Dollar Index appear to be heading lower. While the U.S. economy is expanding and the FOMC has retreated from its rate-cutting stance, conditions within the broader Forex market suggest the move lower will continue. What could be driving such a move in the face of positive economic forces? A reduction in global fear and an increase in risk-on appetite.
The Phase One Trade Deal is the primary cause. A reduction in tension between the U.S. and China have taken the edge off of negative sentiment. The idea the deal could be signed, and include a lessening of tariffs, very soon has renewed optimism for global economic growth. Oddly, the EUR is best positioned to take advantage of these conditions. Why? Because the EU’s largest trading partners are China and the U.S. With those two nations back to business the EU is sure to see its own economic activity improve.
The EUR/USD Is Testing Resistance
Over the course of the last month the EUR/USD has completed a small double-bottom and edged higher. The move remains within a major trading-range but has managed to do two things. The first is to set not one but two new four-month highs. The second is to test resistance at the 1.1190 level and push above it. The pair is still struggling to get a close above this level but it’s only a matter of time. The indicators are bullish and point to higher prices in the near-term at least.
There are few catalysts on the economic calendar this week but there are some. These include PMI readings from both the U.S. and EU along with Pending Home Sales (U.S.) and a raft of reports from individual EU member nations. There is some risk for investors within the data, the bigger risk will be trade-related news from either the U.S. or China, or both.
The Long-Term Outlook Is Bullish
The long-term outlook for the EUR/USD is also bullish but traders are warned the pair may finish the new year (2020) more flat than up. The weekly charts show the pair in a possible reversal and indicated higher. A break above the 1.1190 resistance level would confirm the bullish outlook and likely take the pair up to the 1.6250 level. It is possible the pair could move above 1.6250 but that would take an actual improvement in economic activity (EU) including acceleration. I see that happening but not until the Phase One Deal is done. Until then be wary.