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Andreas Zanin
Analysis | February 16, 2021

KTM FX Weekly: EURUSD on the edge of a breakout

The next upside level to watch out for is around 1.2150 in the next few trading sessions, and immediate support is placed at 1.2050.

The common currency extended last week’s rally and ended at the first resistance level on February 15. The recent bounce-back was led by the dollar depreciation, but not on the EUR’s own merits. The EURUSD rose 0.70% or 90 pips last week but remain capped at 50MA on the daily chart.

 Numbers to watch:

The common currency continues to benefit from the US dollar weakness as global market sentiment improves from the coronavirus pandemic.

Last week the European Commission cited “A CHALLENGING WINTER, BUT LIGHT AT THE END OF THE TUNNEL.” At the same time, EC also said, “The year 2021 is set for a subdued start” and highlighted that “Stronger growth from mid-2021 helps advance the recovery to pre-crisis levels”.

However, lack of surprises from the Interim European Economic Forecast Winter 2021 report, the common currency failed to cheer against its peers. Especially against the AUD and NZD, risk and trade-related currencies. Our subject currency is benefiting only from the US dollar weakness.

Turning to covid-related lockdowns Germany, EZ’s largest economy, is planning to extend its national lockdown until 1st week of March.

With the public holiday in the US, President’s Day financial markets are closed there, but European financial markets were opened. So, the UST 10yr yield unchanged from Friday at 1.20%. However, Germany’s benchmark 10-year Bund yield closed at -0.38%, up 0.44 from Friday’s closing.

FX: Among euro crosses, EURAUD, EURGBP, and EURNZD have been trading down since March 2020 high. Levels to watch are 1.5430 in EURAUD, 0.8600-0.8450 in EURGBP, and 1.6500 in EURNZD.

Our subject currency has moved lower since the beginning of the year’s peak. There are several factors that are supporting USD from December 2020 lows.

Danske bank says, “We view this as a shift in the market narrative towards our view of US economic outperformance due to the outlook for fiscal easing, a strong US vaccination process, and potential for a fast labor market recovery, while EU is lagging behind due to a slow vaccination process and fading export tailwinds from a slowing Chinese expansion.”

Macros: Euro Area Industrial Production was out on Monday.

  • In December 2020, production in the industry remained unchanged on the previous month on a price, according to provisional data of the Federal Statistical Office (Destatis).
  • The sentix economic index for the eurozone declined by -1.5 points in February to an index level of -0.2 points, according to sentix.
  • EZ industrial production dropped by 1.6% in December, according to estimates from Eurostat, the statistical office of the European Union.

Looking ahead, we will see German ZEW, Eurozone 4Q GDP, and Flash PMI. Besides, keep an eye on FOMC and ECB minutes on Wednesday and Thursday.

 TECHNICAL OVERVIEW

The EURUSD produced a decent bounce after breaking through the neckline. As forecasted last week, the price ran through the target of 1.1250. But now, it is capped at 50MA and pressing towards the support level.

The daily RSI and oscillator are suggesting the price might re-test the potential resistance zone of 1.2150-1.2190. Overall, 1.2200 is the next resistance level to watch if trades above 1.2150.

On the downside, 1.2100 and 1.2050 are the two support levels to watch out for. We expect minor consolidation ahead of FOMC minutes due tomorrow. Further dollar weakness would allow the price to reach 1.2200. If FOMC lifts the US dollar, then focus on 1.2060 and 1.2000 levels.

It is important to always keep in mind the risks involved in trading with leveraged instruments.

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