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EUR/USD Fills 2015 Gap, Bull-Flag Continues to Unfold Ahead of ECB

EUR/USD Fills 2015 Gap, Bull-Flag Continues to Unfold Ahead of ECB

David Song, Strategist

Talking Points:

- EUR/USD Fills 2015 Gap, Bull-Flag Continues to Unfold Ahead of ECB.

- Nikkei (JPN225) Losses to Persist as ‘North Korea Poses a Grave and Growing Threat.

- Sign Up for the DailyFX Trading Webinars for an opportunity to discuss potential trade setups.

DailyFX Table
TickerLastHighLowDaily Change (pip)Daily Range (pip)
EUR/USD1.20161.20701.195637114

EUR/USD may continue to appreciate ahead of the European Central Bank (ECB) meeting on September 7 as the pair finally fills the January-2015 (1.2000 down to 1.1955).

The U.S. dollar remains under pressure following the Kansas City Fed Economic Symposium in Jackson Hole, Wyoming, as the market participants push out bets for the next rate-hike. A look at Fed Fund Futures suggest Chair Janet Yellen and Co. will wait until the June 2018 to implement higher borrowing-costs, and the central bank may highlight a more shallow path for the benchmark interest rate amid the growing uncertainty surrounding the economic outlook.

In contrast, the Euro may face a more bullish fate as the ECB adopts an upbeat tone and appears to be on course to taper the asset-purchase program ahead of the December deadline. In turn, President Mario Draghi and Co. may gradually move away from the easing cycle and alter the monetary policy outlook over the coming months as ‘reflationary forces, which referred to the recovery of inflation from levels below its long-term trend, had replaced risks of deflation.’

See how shifts in EUR/USD retail positioning are impacting trend- Click here to learn more about sentiment!

EUR/USD Daily Chart

EUR/USD Daily Chart

Chart - Created Using Trading View

  • Topside targets remain on the radar for EUR/USD as a bull-flag formation pans out, with the pair initiating a initiates a series of higher highs & lows after breaking of out a near-term range.
  • Another close above the 1.1960 (38.2% retracement) region raises the risk for a run at the 1.2130 (50% retracement) hurdle as the bullish momentum appears to be gathering pace; watching the Relative Strength Index (RSI) as it flirts with overbought territory, with a break above 70 raising the risk for a larger advance in the euro-dollar exchange rate.
TickerLastHighLowDaily ChangeDaily Range
JPN225193461947519144129331

The Nikkei snaps the range-bound price action carried over from the previous week as the U.S. and Japan ‘agree that North Korea poses a grave and growing threat.’

Mounting tensions in Asia-Pacific may continue to drag on in risk sentiment as U.S. President Donald Trump warns ‘all options are on the table’ in dealing with North Korea, and the shift in market behavior may persist over the coming months a growing number of global benchmark equity indices fail to preserve the bullish trends from earlier this year. In turn, JPN225 stands may continue to give back the rebound from the 2017-low (18,193) as the index trades below the 200-Day SMA (19,412) for the first time since the U.S. Presidential election.

JPN225 Daily Chart

JPN225 Daily Chart

Chart - Created Using Trading View

  • Failure to preserve the near-term range keeps the downside targets on the radar, with a close below the 19,280 (23.6% retracement) hurdle opening up the next region of interest around 19,000 (61.8% retracement) handle, followed by the 18,600 (61.8% retracement) to 18,710 (38.2% retracement) zone.
  • Keeping a close eye on the Relative Strength Index (RSI) as it preserves the bearish formation from earlier this month and approaches oversold territory, with a break below 30 raising the risk for a further decline in JPN225.

Retail Sentiment

Retail Sentiment
  • Retail trader data shows 24.9% of traders are net-long EUR/USD with the ratio of traders short to long at 3.02 to 1. In fact, traders have remained net-short since April 18 when EUR/USD traded near 1.07646; price has moved 11.7% higher since then. The number of traders net-long is 1.4% higher than yesterday and 12.4% lower from last week, while the number of traders net-short is 1.1% lower than yesterday and 12.5% 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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