Every situation in life is temporary. So, when life is good, make sure you enjoy and receive it fully. And when life is not good, remember that it will not last forever and better days are on the way- Bruce Lee.
The first half of the above quote represents the dollar index and the second half of our subject currency, the euro. Interestingly both trading in a symmetrical triangle. Let’s discuss this below.
USDX: The dollar index dominated over the G10 and EM currencies for the past month. But during the same time, the yields fell to 1.30%-its lowest level since February but closed at 1.45% by the end of June 2021. But overall, nearly yields gain 55%, and USDX rallied 3% in 1H. Our subject currency fell to a three-month low against the dollar. On average G10 currency fell 3% in the 1st half against the dollar. Past is past. Now, what should traders expect in the second half of this year? Europe will catch the speed in Q3 is our base scenario. And German election in September/ end of Q3 is the key driver to the common currency.
We are sitting in July-in other words, near to the end of this year than closer to 2020. That’s one way of saying.
Moving within a symmetrical triangle pattern.
As per the above chart, out of twenty years, twelve times the price traveled south in the second half, and 11 times the 1H performance was green during the same period. Let’s shift our focus to our subject currency euro. The price managed to hold the lower end of the symmetrical triangle, as shown below.
At the same time, the dollar failed at the higher end of the same pattern.
Two dimensions of the 100MA-monthly.
On top of this fact, the EURUSD RSI traced out a double bottom pattern, and the 100MA monthly is offering decent support so far. Whereas in the dollar index chart, the same 100MA is acting as resistance. Hence, a short-term rally could be expected towards 1.1975-1.2000 and 1.2050 if 1.1900 taken out.
The macro picture of last week’s ECB minutes revealed that a Symmetric 2% inflation target was adopted by the ECB. But the overall ECB play hasn’t changed much in terms of macro perspective. Fed is well ahead to ECB, but not to the RBNZ.
Symmetric: “This target is symmetric, meaning negative and positive deviations of inflation from the target are equally undesirable.” according to the press release.
In the macro view, Euro area GDP growth should peak in Q3. ECB to remain very dovish in H2. We have raised our UK inflation forecasts for Bank J. Safra Sarasin cited in a research note last week.
This forecast is in line with IMF. International Monetary Fund predicted the Euro area economy would outpace the US in the coming year. In its latest World Economic Outlook, the IMF projected that the EA economy is seen expanding to 3.8% vs. 3.5% in the United States.
Looking at the past week’s data points, the latest service PMI number revealed that growth in the Eurozone hits a 15-year high during June. The index recorded 58.3, up from 55.2, and signaling growth for a third successive month, according to the IHS Markit.
Looking ahead, Canada and New Zealand central banks will release their monetary policy settings. Euro cross lovers could watch the EURCAD action. The cross traced out a double bottom pattern on the monthly chart and holds the 200MA so far.
Besides, we will get the important macro update on inflation for the EZ and US. We were reminding the Flash release Eurozone flash CPI slows to 1.9% in June vs. US annual rate rises to 2.1% during May.
Regarding US inflation, SEB said, Inflation in June is expected to slow compared to April and May but continue to be elevated compared to the pre-pandemic trend.
It is important to always keep in mind the risks involved in trading with leveraged instruments.
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