Key Points:
- Euro continues to rally following hawkish ECB statement
- Minor support at 1.1588 remains in place
- Watch for a continued move towards 1.18 in the week ahead
The euro continued to rally strongly last week and currently shows no sign of topping or a loss of momentum. Much of the bullishness came late in the week when the ECB’s Mario Draghi suggested that Eurozone growth and employment continues to strengthen and hinted that the bank could review QE in the near future. Subsequently, the EUR/USD rallied strongly to close the week out around the 1.1661 mark but it remains to be seen if the currency can retain this directional bias in the week ahead.
The euro remained strongly predisposed to the upside throughout most of last week as the pair continued to rally without a top or slowdown in sight. The primary trend driver was some statements from the ECB’s venerable Chairman, Mario Draghi, who suggested that EU growth and employment remained bright spots. In addition, he hinted that the central bank may review their QE and asset purchase program in the near term. This sent the euro dollar rallying sharply as speculation continues to grow that the ECB could potentially consider tapering or reducing their stimulus programs during September’s meeting. Subsequently, the euro shot sharply higher and continued to rally late into the week, finishing around the 1.1661 mark.
Looking ahead, it’s set to be another volatile week for the EUR/USD with the EU Services PMI and U.S. FOMC decision due for release. The Services PMI will be a relatively interesting figure to watch given the renewed upside risks for the Eurozone economy. The official estimate has the indicator coming in around the 54.3 mark, which would again represent growth, and further support the euro. However, the primary event for the coming week is likely to be the U.S. FOMC decision which is likely to determine the pair’s near term fundamental trend. Most economists are predicting that the central bank will sit pat at 1.25% but watch for any jawboning in the statements following the event as volatility could ensure.
From a technical perspective, the euro dollar continues to roar higher and there appears to be little sign, at this stage, of a top forming. Subsequently, our initial bias for the week ahead remains bullish as long as minor support at 1.1582 remains intact. However, it should be noted that the RSI Oscillator is currently strongly overbought and may need a period of moderation in due course. Regardless, the medium term view still remains strongly bullish for the euro and we might just see the 1.18 handle yet. Support is currently in place for the pair at 1.1478, 1.1381, and 1.1313. Resistance exists on the upside at 1.1713 1.1872, and 1.1977.
Ultimately, the coming week is likely to only bring with it increased opportunities for the euro dollar as it seems relatively likely that we could see a move towards the 1.18 handle. However, there could be plenty of volatility around as the Fed gets ready to meet to, potentially, jawbone the market. Subsequently, watch your positioning as Janet Yellen has been fairly apt at moving the market with her rhetoric of late.