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EUR/USD Extends Bullish Series as ECB’s Draghi Softens Dovish Tone

EUR/USD Extends Bullish Series as ECB’s Draghi Softens Dovish Tone

David Song, Strategist

Talking Points:

- EUR/USD Extends Bullish Series, Rallies to Fresh 2017 High on Less Dovish Draghi.

-USD/JPY Grinds to Fresh Monthly High Ahead of Chair Yellen Speech.

DailyFX Table

Currency

Last

High

Low

Daily Change (pip)

Daily Range (pip)

EUR/USD

1.1287

1.1305

1.1179

105

126

EUR/USD extends the bullish sequence carried over from the previous week as European Central Bank (ECB) President Mario Draghi adopts a less-dovish tone and argues ‘deflationary forces have been replaced by reflationary ones.’

Even though the ECB remains in no rush to move away from the zero-interest rate policy (ZIRP), the euro-dollar exchange rate may continue to retrace the decline from 2016 as the central bank slowly changes its tune and highlights an improved outlook for the euro-area. As a result, the Governing Council may come under pressure to remove the quantitative easing (QE) program, and speculation for a less accomodative policy stance may prop up the Euro throughout the remain of the year especially as President Draghi and Co. now forecast the euro-area to grow an annualized 1.9% in 2017.

EUR/USD Daily

EUR/USD Daily Chart

Chart - Created Using Trading View

  • The ongoing shift in market behavior keeps the broader outlook for EUR/USD tilted to the topside, with the pair at risk for a further advance as the Relative Strength Index (RSI) comes up against trendline resistance and threatens the bearish formation carried over from the previous month.
  • May see the RSI flash a bullish trigger over the coming days as EUR/USD extends the series of higher highs & lows carried over from the previous, with a close above the 1.1290 (38.2% expansion) hurdle opening up a key resistance zone around 1.1330 (23.6% expansion) to 1.1350 (50% expansion).

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Currency

Last

High

Low

Daily Change (pip)

Daily Range (pip)

USD/JPY

112.28

112.30

111.46

42

84

USD/JPY grinds to a fresh monthly high of 112.30 following an unexpected uptick in U.S. Consumer Confidence, and the pair stands at risk for further advance it appears to be making another attempt to break out of the downward trending channel carried over from the previous year.

Fresh remarks from Chair Janet Yellen may fuel the near-term advance in USD/JPY as the Federal Open Market Committee (FOMC) appears to be on course to further normalize monetary policy in 2017, and the dollar may catch a bid should the central bank head show a greater willingness to unload the balance sheet sooner rather than later. However, more of the same from Chair Yellen may dampen the appeal of the greenback as market participants mull the timing of the next rate-hike, and Fed officials may merely try to buy more time especially as the International Monetary Fund (IMF) trims its growth forecast for the U.S. economy.

USD/JPY Daily

USD/JPY Daily Chart

Chart - Created Using Trading View

  • After closing above the 111.60 (38.2% retracement) hurdle, topside targets are in focus for USD/JPY as it imitates a bullish sequence, with the near-term outlook becoming increasingly constructive as Relative Strength Index (RSI) extend the a bullish formation from earlier this month.
  • Next region of interest comes in around 112.40 (61.8% retracement) to 112.80 (38.2% expansion)followed by the Fibonacci overall around 113.80 (23.6% expansion) to 114.30 (23.6% retracement), which largely lines up with the May-high (114.37).

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  • Retail trader data shows 19.5% of traders are net-long EUR/USD with the ratio of traders short to long at 4.13 to 1. In fact, traders have remained net-short since April 18 when EUR/USD traded near 1.0589; price has moved 6.6% higher since then. The number of traders net-long is 27.0% lower than yesterday and 39.8% lower from last week, while the number of traders net-short is 16.4% higher than yesterday and 20.4% higher from last week.
  • Retail trader data shows 57.3% of traders are net-long USD/JPY with the ratio of traders long to short at 1.34 to 1. In fact, traders have remained net-long since May 17 when USD/JPY traded near 113.757; price has moved 1.3% lower since then. The number of traders net-long is 11.6% lower than yesterday and 15.2% lower from last week, while the number of traders net-short is 3.6% higher than yesterday and 8.4% higher from last week.
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--- Written by David Song, Currency Analyst

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

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DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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