EUR/USD Hits 3½ Week High: Fresh Upside Potential

Includes: ERO, EU, EUO, FXE
by: FXstreet

The recovery in the euro extended through $1.3025/50 supply after two consecutive failures at the level, with the exchange rate finding a peak at $1.3065. This represents a new high not visited since last March 15.

After the marginal low sub $1.2750 on Friday, the pair has gained 100+ pips on average per day. Will the surprisingly strong winning streak continue? According to Kathy Lien, co-founder at BKAssetManagement, "we believe that the extension of the EUR/USD breakout from last week will be limited to $1.3135 - $1.32."

For Kathy, what has been recently fueling the euro rally was last week's disappointment by the ECB, "which failed to lay the foundation for a rate cut and suggested its toolbox is empty".

Meanwhile, we have also argued that other than the downbeat NFP data from Friday, which exacerbated the pain for those short the euro, another critical element not to overlook is the strong daily supply reached by the USD index at $83.50. If one notices, the price had a very sharp fall off the level right to the pip, suggesting a large stack of sell orders filled.

Kathy's low confidence on a more meaningful bounce in the EUR/USD is based on some solid fundamental argument, saying that "a rate cut by the ECB is still on the table. Without a Single Supervisory Mechanism, other countries could fall victim to the same problems as Cyprus." In addition, she expects growth in Europe to stay weak as austerity makes more harm than good.

Another ticking bomb for the euro is Portugal, where after the budgetary setback following the constitutional court ruling against certain austerity measure, Portuguese Prime Minister Pedro Passos Coelho has now the laborious task of implementing further cuts in both health and education in order to meet the Troika's demands to secure the success of its bailout program.

If one is to judge where price stands and where is likely to be the next stack of large institutional sell orders, chances are that buyers still may enjoy some more upside potential. This is especially after supply at $1.3025/45 was absorbed, leading to expand the potential upside scope towards $1.3140/60 supply, that is an additional 100 pips higher, as per the rally-base-drop from February 28.

According to Ivan Delgado, head of Asian editors at "Area of value to reinstate longs may come around the $1.30 psychological level. Although by looking at the chart, it is hard to identify where the next stack of large institutional orders is until $1.2900-15/30, where judging by the post NFP reaction, looks like the imbalance between buyers and sellers remain."

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.