What’s Changing?

EURUSD had been under heavy pressure in recent weeks, but is coming off a big upward reversal last week. It now appears to have completed a major retest and is turning back upward but faces resistance challenges in the near term.

 

Technicals:

EURUSD sold off dramatically in the latter part of 2014 and early 2015.  Earlier this year, the pair completed a double bottom in the $1.0475 to $1.0500 range and has been trending sideways through much of 2015 peaking near $1.1700 back in August.

Since the previous ECB meeting when the hints toward new stimulus started, EURUSD had been under distribution, but had become oversold on the RSI and had once again found support near $1.0500 ahead of last week’s meeting, suggesting high stimulus expectations had already been priced in.

On Thursday Dec 3, EURUSD exploded to the upside with a massive belt hold and bullish engulfing candle as the pair soared from near $1.0500 to $1.1000 where it ran into round number, Fibonacci and moving average resistance.

Over the last couple of days, the pair has settled back in normal backing and filling. $1.0800, which has acted as a key support/resistance level through the year and was a recent breakout point has emerged as new support, while RSI back above 50 and holding also confirms the upturn.

Initially, the pair may consolidate in the $1.0800 to $1.1000 range with next resistance at the 200-day average near $1.1030 then a prior high near $1.1090. A 38% retracement of the August to December decline appears near $1.1111.

 

 

Fundamentals:

The street clearly had been expecting a lot more from the ECB in terms of stimulus than it delivered, which was seen in the strength of the snap back rally. Extending the program is not that same as increasing the purchase target as it doesn’t add anything new now. Adding the ability to buy regional bonds only increases the potential that the ECB could actually hit its current QE targets

The elephant in the room which was overshadowed by the focus on monetary policy was the positive economic news which could help to support EUR going forward. One of the reasons the ECB didn’t have to do as much is because current QE has been working and the Eurozone economy has been improving. The ECB raised its growth forecasts for 2015 and 2017. Particularly encouraging has been the stronger growth numbers coming out of previous problem areas like Italy and Spain.