Chart of the Day EURUSD
EURUSD Potential Range Break - Probable Price Path
Broad-based dollar selling boosted EURUSD. A Reuters exclusive reported that the ECB is drafting contingency plans should Germany's Bundesbank quit the bond-buying program. That report drove investors into the Euro. EUR/USD rallied above 1.0980 while EURJPY climbed towards 118.20. European government bond yields helped EUR/USD longs as well. The German 10-year Bund yield climbed further above the bull pennant top, which broke last week, and extended near -0.42% while German-Italian 10-year spreads tightened to levels not seen since April 9. EUR/USD bulls should tread cautiously though. EURUSD options show vol premiums for puts over calls has been erased, suggesting investors have no directional bias. EURUSD longs also have the European Commission's recovery plan, due today, to contend with. The plan needs to be ratified by all 27 member states, but some oppose certain proposals. Any signs of trouble for the EC's plan will send EURUSD lower, while optimism could push it above recent range highs.
CitiFX Quant Asset Rebalancing Model notes a rotation from equities into bonds at the May month end. The signal is moderately strong coming in at -1.4/+1.3 historical standard deviations (hist. std. dev.) for equities and bonds respectively. Almost all, but LatAm equities, are likely to see outflows with US and Canada receiving the strongest signals. In bonds, UK, US and Canadian markets are set to receive inflows. The FX impact notes the selling of USD against EUR and GBP at month end.
From a technical and trading perspective, the EURUSD has been attempting a top side advance from its recent contracting range trade. As of writing both the monthly and daily volume weighted average prices have flipped bullish suggesting that bullish exposure should be rewarded on a breach of overnight highs through 1.0985, initially targeting a test of 1.1060 the interim equality objective and through here opens a test of the primary equality objective at 1.1235. A closing downside breach of 1.09 would negate the bullish thesis and see a return to range trade and another test of 1.08
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Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company.
Past performance is not indicative of future results.
High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% and 75% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
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Patrick has been involved in the financial markets for well over a decade as a self-educated professional trader and money manager. Flitting between the roles of market commentator, analyst and mentor, Patrick has improved the technical skills and psychological stance of literally hundreds of traders – coaching them to become savvy market operators!