From October 24th 2018, the Euro (FXE) has been trading in a sideways pattern that has left many traders frustrated. I say this as the sideways pattern does not offer traders a chance to earn some meaty profits. Nevertheless, I expect the trend to change soon as I bullish on the Euro rising till the range between 1.1609 and 1.1657. However, before that occurs I expect the Euro to fall against the Greenback (UUP) till the 1.1436 mark. Hence, to establish the likelihood of this occurring, I shall look at the fundamental news affecting the pair, whilst also analyzing the charts using technical analysis tools.
I believe the recent uptick in the Yuan’s value will cause a bullish rise in the value of the Euro. I say this as an uptick in the Yuan bodes well for all major currencies in the world expect for the U.S. Dollar. This is as the Yuan is considered as an anchor for the whole forex market. Moreover, if the ongoing trade negotiations were to have a positive outcome then I believe this will send the value of the Yuan further up which will greatly benefit the Euro.
Narrowing inflation divergence:
The key inflation rates in the United States and the Eurozone are starting to converge at one point. This is as the inflation rates have narrowed slightly from previous extremes and this is all due to the modest easing seen in the United States and the marginal pick up seen in the Eurozone. Hence, I believe this will be a positive factor for the Euro in 2019. This is as a convergence in the inflation rates will lead to the European Central Bank normalizing interest rates by year end. This in turn would cause the Euro to have a significant rise against the U.S. Dollar.
The latest CTFC data shows that at the end of last year there were significantly more long positions in the U.S. Dollar than short positions in the Euro. This is one of the reasons I expect the Euro to have a rise in the coming future. I say this as the U.S. Dollar is presently more vulnerable to negative news due to the higher number of long positions. Thus, the negative news relating to the government shutdown will cause a significant fall in the value of the U.S. Dollar.
U.S. Inflation level:
The recently released U.S. inflation data indicates to traders that the Greenback will be having a fall against the Euro in the coming days. I say this as the headline Consumer Price Index fell to -0.1% in December which is the lowest level seen since March 2018. Moreover, it is a fall from the prior month’s value of 0%. However, the bearish pressure is partially diluted by the Core Consumer Price Index. This is as the Core Consumer Price Index remains unchanged from the prior month’s value of 0.2%. Additionally, it was in line with analyst estimates as they had pegged it at 0.2%.
The pair’s daily chart indicates that in the coming days the Euro will be slightly falling against the U.S. Dollar after which I expect it to have a strong bullish ascent. I say this as I expect a bearish fall to commence due to the ongoing formation of a ‘Three Inside Up’ candle formation. This candle pattern indicates to investors that the bulls are having a resting period before they commence a fresh bullish ascent. Moreover, I am confident that it is this candle pattern as it is forming a few pips away from the 50% fibonacci support level at 1.1436. Furthermore, the 50% fibonacci support level is also a change of polarity zone where former resistance came new support. Therefore, due to this I believe traders can go long on the Euro from the 50% fibonacci support level.
On the price target front, I expect the Euro to fall till the 50% fibonacci support level at 1. 1436. Once it falls to the said level I expect the Euro to rise till the range between the 61.8% and 78.6% fibonacci resistance levels. The 61.8% fibonacci resistance level is at 1.1609, whilst, the 78.6% fibonacci resistance level is at 1.1657. If the Euro does breach the 78.6% fibonacci resistance level, then I do not expect the rise to go beyond the 100% fibonacci resistance level at 1.1718.
On the indicator facet, the RSI has just broken below the 30 mark, thus, supporting the notion that the Euro will be having a short-lived descent after which it shall commence an ascent. Furthermore, the ADX has turned flat, hence, signalling to investors that the bearish trend has stalled.
The Big Picture:
Overall, I am leaning towards the bulls pushing the value of the Euro till the 1.1657 mark. This is driven by the fact that the technicals and fundamentals support an ascent in the currency's value till that point. However, once it rises to the above-mentioned level, I do not expect the Euro to have a further bullish ascent as it shall be extremely overextended.
Good luck trading.
Disclosure: I/we 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 (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.