EURUSD Stretching into Resistance, Dampening Rosy Outlook
- EURUSD rallies to targeted zone of resistance
- Risk for longs is rising, but shorts not warranted yet
- The ‘wrong-side crowd’ could throw in towel and produce a squeeze; FOMC on Wednesday could be a catalyst
Looking for a longer-term view on EURUSD? Check out the Q3 Forecast.
Heading into last week and the ECB meeting we held a bullish outlook for the euro, with eyes for the 2016 high over 11600, and on a push through that level would bring into play the August 2015 high sitting just north of 11700. To close out last week the euro finished between the two eyed thresholds. The path of least resistance is clearly higher, but from a risk/reward perspective chasing the current up-move into resistance without a correction isn’t particularly attractive. At any point here we could at the least see a minor retracement if not something more. However, with that said, when a trend gains as much traction as EURUSD has there is always the risk that we see one side of the market (shorts) throw in the towel, resulting in a sharp squeeze.
We have a catalyst this coming week which has potential to do just that, as the FOMC is set to release its decision on interest rates and policy statement. Rates are expected to remain unchanged, but any material signaling for the September meeting could have a sizable impact on the US dollar. Join us live for FOMC coverage on Wednesday.
If the euro continues to gain steam and breaks the August 2015 high at 11714, the next natural level of resistance doesn’t arrive until the 2012 low at 12041. It seems unlikely, though, such heights will be reached in the coming week – it would be quite the move. Some back-and-forth seems likely to take place prior to Wednesday between ~11600 and ~11700. After that, we’ll have a clearer picture as to how things will unfold.
All-in-all, risk is rising for longs, but shorting without a sharp turn in momentum and failure to recover doesn’t present a very good proposition either.
Live events are held daily by DailyFX analysts, for a full line-up see the Webinar Calendar.
---Written by Paul Robinson, Market Analyst
You can receive Paul’s analysis directly via email by signing up here.
You can follow Paul on Twitter at @PaulRobinonFX.
DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.