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'Europhoria', the term used to emphasize buying interest in the bloc's currency, could again be well applied to present conditions in the market, after the spot rate against the U.S. dollar rose to a fresh 11-month high last Friday.

One of the main triggers sustaining the rally post-$1.34 is the ECB announcement on Friday that 278 eurozone banks would repay 137.2 billion euro borrowed in December 2011 under the 3-year Long Term Repo Operation (LTRO).

The question floating in the marketplace now is, how durable can the EUR/USD rally be? and what lies beyond $1.35?

According to Kathy Lien, co-founder at BK Asset Management,

the pair is poised for a move to $1.35 with the $1.3485-$1.3525 level being the next major area of contention", adding that "the weekly charts also show an inverse head and shoulders pattern that supports the case for further gains.

The technical pattern mentioned by Kathy, is one that Marc Chandler, Head of Currency Strategy at BBH, also identifies as critical to expand euro gains much further, calling a breakout of 1.35 as pre-requisite for the euro to target much higher levels.

The next immediate target is near $1.35, which also corresponds with a 50% retracement of the euro's decline from its last attempt at $1.50 back in May 2011. For medium- and longer- term participants, 1.35 is also key as is the neckline of a potential large head and shoulders bottom pattern that would, if valid, suggest a target near $1.45. More immediately, a convincing break of $1.35 could spur a move toward $1.38.

However, as savvy market speculators may anticipate, steady gains last for so long... before a correction takes place. Such a dynamic move, [necessary] in order for bulls to take profit and provide a second chance to join the euro bandwagon by the more conservative traders, may be around the corner says Valeria Bednarik, chief analyst at FXstreet.com.

Valeria notes:

The hourly chart shows price above a strongly bullish 20 SMA, while momentum losses upward potential and RSI stands near overbought levels, which suggest short term bearish corrective movement may come first: $1.3450 comes as immediate support and if below, the downside is exposed up to the $1.3380 area, without really harming current bullish trend.

Chris Capre, founder at 2ndskies.com, also offers his view:

The pair has broken out of the two week range on Friday, while maintaining the series of higher lows and higher highs. The former range resistance becomes intraday support at 3400. If this holds, a challenge towards 3500 would likely be on deck, but a failure back into the range suggests trend could be weakening.

Source: EUR/USD To $1.35: The Catalyst For Greater Gains?