Euro: Lack Of Direction Prevails

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Includes: FXE
by: FXstreet

The shared currency is trading in a sort of channel since mid May, delimited by the psychological mark at 1.3000 and the 1.2800 handle. It seems that the absence of relevant events, news, potential market-movers or even comments by government officials is deriving the bulk of the volatility to the days prior to the next ECB meeting in early June.

ECB and Fed talks

The consequent meandering of the EUR/USD reflects that the concerns of investors have somehow allayed, at least in the very near term.
However, market chatter is still considering the likelihood of the ECB implementing negative interest rates should the conditions in the euro area deteriorates further, but according to the last economic results, that is not the current situation.

It is worth noting that flash PMI prints in the euro area improved as of late, maybe pointing to a tepid attempt of fundamental recovery into the second quarter, although is still too premature to tell just yet. Furthermore, another 25 bps rate cut has not been ruled out, although the vast majority of the FX community would agree that such a scenario would be mere symbolic.

On the other hand, and more palpable, is the current USD strength stemming from the increasing chance of the U.S. Federal Reserve to taper the ongoing flow of stimulus. The release of the last FOMC minutes in combination with Bernanke's testimony before Congress did nothing to incline the opinions to one side or the other, finding common ground in that more data is needed to start thinking about an exit strategy. More and stronger data. Nonetheless, the high USD long positioning would pose a threat to the ongoing rally in the near term, benefiting the pair at least for a brief period.

In the technical front, the interim resistance lies at 1.2980 (55-day moving average) followed by the psychological level at 1.3000 reinforced. Further impulse should see the par testing the key 200-day moving average at 1.3020 ahead of 1.3075, the 38.2% Fibonacci retracement of the Jul'12-Feb'13 upside. Next barrier up is located around 1.3110/30, where converge the 100-day moving average and the 38.2% Fibonacci retracement of the Feb-Apr slide. Major resistance remains May highs around 1.3220/40.

On the downside, a breach of the key 1.2800 figure would open the door for a revisit of 2013 lows around 1.2740.

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.

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