There is now a widespread perception that the euro has turned a corner, gaining traction and the prospect of the currency falling to parity with the USD has now entirely withered away. Rising inflation, better than predicted economic data and an improved political environment have contributed to market expectations that the European Central Bank may soon start winding down its loose monetary policy operations. This perception lies in stark contrast to the ECB’s steadfast commitment to its current loose monetary policy. It gave no indication last week, following its policy meeting, that it was prepared to start winding down its stimulus program. For this reason, the euro’s upwards move may be capped and consolidation may be in store until Draghi falls in line with market expectations.
If the euro breaks above the current resistance level at about 1.096, than this would be considered an extremely bullish move, however a more likely scenario is that it falls back down towards 1.07 in anticipation of a US interest rate hike increase. Having said that, if you’re looking to buy the euro, short-term or long-term, patiently waiting until the euro falls back towards the bottom of the channel in the chart below could be a very profitably strategy, as you would be buying on a sustained move above the resistance line.
This pair is interesting to analyse because there are so many push-pull factors and counter-intuitive factors affecting its movements. If the yen were to push above the immediate resistance set at about 111.80, it may soon after hit the downwards resistance line as viewed in the chart below. The pair’s present main driver is risk-appetite; should the Trump trade start to falter, we may see a pull-back, however, even if stocks start to fall, the prospect of the Fed raising rates another two times this year should temper any retracement.
Upside momentum may soon start to wane but any sustained charge above 113 would be huge. A likely scenario is that the pair falls back to support but then challenges resistance again later in May. It’s hard to make any trading call at this point, therefore it may be wise to just sit back and see how the recently introduced volatility pans out.However, if pressed, the phrase ‘sell in May and go away’ may apply here.
