Chart of the Day EURUSD
EURUSD Potential Reversal Zone - Probable Price Path
The 18-19 June EU summit will be a key driver of EUR outlook over the coming months. A compromise on the EU recovery fund that would espouse solidarity among member states. This Should Achieve two objectives. The first is a meaningful increase in the level of fiscal spending in the EU (eg,budget expenditures could reach 2% of GDP).The second objective is the removal of the tail risk of Eurozone break-up, resulting in tighter peripheral spreads to Bunds. Greater fiscal support and diminishing fragmentation of the EGB market would arguably further lessen the burden on the ECB from here. One of the main reasons behind this more constructive longer-term outlook on the EUR is a belief that, over time, fiscal stimulus (and solidarity among member states) would augment monetary stimulus in the Eurozone. In turn, this could offer a more solid base for the post-Covid-19 recovery. This more unified approach is likely behind EUR’s recent outperformance and due to renewed investor demand for Eurozone stocks. Indeed, the latest data as of 5th June suggests that there has been a renewed inflow into European ETFs, especially without EUR-hedge .A look at the relative valuations of global stocks would suggest that the Eurozone stocks still offer value relative to the US and Japan.
EUR: Both the European Central Bank Vice President Luis de Guindos and the Executive Committee Isabel Schnabel believe that the central bank's actions to increase debt purchases are appropriate, but due to uncertainties in the prospects, if the economy and inflation prospects deteriorate, they will take action again. Madis Muller, Governor of the Central Bank of Estonia, pointed out that if the economic situation is generally in line with the central bank’s expectations, the central bank does not need to increase easing policies. Italian Central Bank President Ignazio Visco said that using the European Financial Stability Mechanism (ESM) to assist Italy’s economic recovery will not bring risks
USD: Equity markets were mostly lower in Asia with futures markets pointing to lower opens in Europe. Partly weighing on market risk sentiment were concerns about a second wave of infections in the US. The Federal Reserve last night left policy unchanged, as expected, including keeping interest rates at the zero lower bound and maintaining asset purchases under QE “at least at the current pace”. The ‘dot plot’ reinforced Chair Powell’s message that he was “not even thinking about raising rates”. The US economy was predicted to contract 6.5% this year before rebounding by 5% in 2021. The Fed noted, however, that the health crisis posed “considerable risks” to the economic outlook and it reiterated its willingness to add more stimulus if needed, including strengthening its forward guidance.
From a technical and trading perspective, the EURUSD looks poised to complete its bullish impulse leg with an equality objective move to test offers and stops to 1.15 it is reasonable to anticipate some profit taking to emerge here. Bears will be watching for daily reversal patterns to set range short exposure. We could see price rotate back to test 1.1230/50 as a new elevated range base, in a 1.1250/1.1550. As markets potentially move into more of a summer range trade throughout July and August oscillating within this range and allowing overstretched momentum studies to reset before eventually breaking to the upside to ultimately make a run to test 1.1750.1850 in the coming months. As such some two way trade should develop, with a bias to holding and building long exposure for an eventual upside extension
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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!