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EUR/USD Attempts to Break Out of 2016 Trend Ahead of ‘Brexit’ Trigger

EUR/USD Attempts to Break Out of 2016 Trend Ahead of ‘Brexit’ Trigger

2017-03-27 16:00:00
David Song, Currency Strategist
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Talking Points:

- EUR/USD Attempts to Break Out of 2016-Trend Ahead of ‘Brexit’ Trigger.

- AUD/USD Breaks Bearish Series; Outlook Mired by RSI Divergence.

DailyFX Table

Currency

Last

High

Low

Daily Change (pip)

Daily Range (pip)

EUR/USD

1.0883

1.0906

1.0795

85

111

EUR/USD Daily

EUR/USD Daily Chart

Chart - Created Using Trading View

  • EUR/USD gaps higher and climbs to a fresh 2017-high of 1.0906 amid the uncertainty clouding the U.S. fiscal outlook, and the euro-dollar exchange rate may continue to pare the decline from the previous year as it threatens the downward trend carried over from August; the Relative Strength Index (RSI) highlights a similar dynamic, with the recent developments potentially reflecting a shift in market behavior.
  • Indeed, the diverging paths for monetary policy instills a long-term bearish outlook for EUR/USD especially as the European Central Bank (ECB) keep the door open to extend its quantitative easing (QE) program beyond the December 2017 deadline, but recent developments coming out of the Federal Reserve may fuel a larger correction as central bank officials continue to project a terminal fed funds rate close to 3.00%.
  • Nevertheless, the Euro may feel the aftermath of ‘Brexit’ as the U.K. plans to trigger Article 50 of the Lisbon Treaty on March 29, and the threat of contagion may dampen the appeal of the single-currency as market participants brace for elections in France; the Euro-Zone’s Consumer Price Index (CPI) may also drag on the exchange rate as both the headline and core rate of inflation are projected to downtick in March, and the ECB may come under increased pressure to further support the monetary union as it struggles to achieve its one and only mandate for price stability.
  • EUR/USD stands at a key juncture going into April as it comes up against the former-support zone around 1.0880 (61.8% expansion) to 1.0910 (38.2% expansion), while the RSI approaches overbought territory; a failed attempt to break/close above the Fibonacci overlap may spur a pullback in the exchange rate, but the recent developments keeps the near-term outlook tilted to the topside as price & the RSI preserve the bullish trend from earlier this year.

Currency

Last

High

Low

Daily Change (pip)

Daily Range (pip)

AUD/USD

0.7625

0.7648

0.7606

2

42

AUD/USD Daily

AUD/USD Daily Chart

Chart - Created Using Trading View

  • AUD/USD may continue to retrace the decline from the previous week as the recent series of lower highs & lows unravels, but the near-term outlook remains mired by the bearish tilted in the RSI especially as the pair continues to trade within the 2016 range; lack of momentum to test the December high (0.7778) raises the risk for further losses as the pair remains capped by the Fibonacci overlap around 0.7730 (61.8% retracement) to 0.7770 (61.8% expansion).
  • Looking ahead, the Reserve Bank of Australia (RBA) is widely expected to keep the official cash rate at the record-low at the next policy meeting on April 4, and Governor Philip Lowe and Co. may continue to endorse a wait-and-see approach for monetary policy as ‘domestic wage pressures remained subdued and household income growth had been low.’
  • In turn, the slew of fresh rhetoric coming out of the Federal Reserve (Chicago Fed President Charles Evans, Dallas Fed President Robert Kaplan, Chair Janet Yellen, Fed Governor Jerome Powell and Minneapolis Fed President Neel Kashkari) may largely influence the aussie-dollar exchange rate over the remainder of the month as the central bank appears to be on course to further normalize monetary policy over the coming months; however, with Fed Fund Futures now highlighting a less than 50% probability for a June rate-hike, the key speeches may produce near-term headwinds for the greenback should by the group of 2017-voting members attempt to buy more time.
  • As a result, AUD/USD may face range-bound conditions over the coming days following as the Fibonacci overlap around 0.7590 (100% expansion) to 0.7600 (23.6% retracement) appears to be providing near-term support, but the bearish tilted in the RSI keeps the near-term outlook tilted to the downside, with the next region of interest coming in around 0.7500 (50% retracement) to 0.7530 (38.2% expansion).

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DailyFX SSI
  • The DailyFX Speculative Sentiment Index (SSI) shows the retail crowd has been net-short EUR/USD since March 15, while traders remain net-short AUD/USD since January 9.
  • Retail trader data shows 29.2% of traders are net-long EUR/USD with the ratio of traders short to long at 2.42 to 1. The number of traders net-long is 7.4% lower than yesterday and 13.9% lower from last week, while the number of traders net-short is 7.6% higher than yesterday and 15.1% higher from last week
  • Retail trader data shows 34.7% of traders are net-long AUD/USD with the ratio of traders short to long at 1.88 to 1. The number of traders net-long is 11.3% lower than yesterday and 2.1% lower from last week, while the number of traders net-short is 10.7% higher than yesterday and 18.0% lower from last week.

Why and how do we use the SSI in trading? View the free trading guide here

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Read More:

Gold Prices Recover Entire March Decline – FOMC, US GDP in Focus

EUR/USD – Will it Vote Yes or No on a Breakout?

FTSE 100 Dropping into Trend Support, but Will It Hold?

Crude Oil Price Forecast: Bearish Evidence Is Gathering Steam

--- Written by David Song, Currency Analyst

To contact David, e-mail dsong@dailyfx.com. Follow me on Twitter at @DavidJSong.

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