EUR/USD - How Long Until Loyal Buyers Take It To $1.38/$1.40?

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 |  Includes: ERO, EU, FXE, UDN, UUP
by: FXstreet

The firm uptrend in the euro continues to be nothing short of stunning, with attempts to challenge higher prices greeted with an army of committed buyers on every shallow pullback.

The uneventful NFP jobs data posed no disturbance to the pair's healthy bullish tone last Friday. As widely anticipated, the actual jobs numbers came close to projections, causing subdued moves in the U.S. dollar overall. The creation of jobs stood at +157k from an upward revision to 196k the prior month. The jobless rate saw an increase to 7.9% from 7.8%.

So far, the technicals in EUR/USD are still screaming 'buy me on dips', a view shared by many markets commentators like Marc Chandler, Global Head of Currency Strategy at BBH, noting that the main drivers of the Forex market have strengthened in favor of the euro, which implies that

current trends, especially euro strength, are likely to persist, reinforcing the behavior of buying EUR on pullbacks and selling into bounces of other currencies.

Marc identifies two main drivers in the EUR/USD:

First, the tightening of monetary conditions in the euro area, amid some evidence that the regional economy is recovering and the German locomotive itself finding better traction. Secondly, the Federal Reserve remains committed to buying $85 billion of long-term securities a month. This likely to persist through the year.

According to Sebastien Galy, currency strategist at Societe Generale, the outlook of growth "is neither too hot nor too cold keeping the Fed on hold and UST 10 year yield still well contained in their current regime" he says. He notes that a possible breakdown of this relationship "will eventually happen in H2", but till then, the current environment "still supports the risk on to keep buying dips on EUR/USD, with the amusing quote of taking advantage of conditions to "crush the EUR/USD up against the wall."

Looking forward, trader's minds will be occupied with the ECB monetary policy meeting later this week. According to Kathy Lien, co-founder at BK Asset Management,

there is a potential for some profit taking in the EUR/USD ahead of the event.

Kathy adds:

Monetary policy is expected to remain unchanged but everyone will be listening carefully for Draghi's comments on the currency. At $1.34, the ECB was comfortable with the level of the euro but do they feel the same way after the currency hit a high of $1.37? We believe that the central bank is getting fidgety but the pain threshold should be between $1.38 and $1.40.

While agreeing with Kathy's view on the potential ECB risk event being a catalyst for possible profit-taking, since there is still three days left of full trading until Thursday's ECB meeting, technicals should continue to govern prices in the near term.

According to Ivan Delgado, head of Asian analysts at FXstreet.com:

In order for bears to take short-term control, $1.3630 should be taken out, potentially leading to $1.3585, where plenty of buyers were parked after the initial USD spike post NFP. Only break below $1.3535, January 31 swing low, may disrupt the rally on the euro.

The analyst tips, on the contrary, that a break into new trend highs would imply "further upside resolution to $1.38, [the] next goal for buyers." Above that level, and bearing in mind the relentless bullish momentum, "$1.40 will surely be the next focus" Ivan said.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.