Euro May Pullback Slightly Before Heading To December High

Hourly charts on EURUSD suggest a pullback is likely as the move of nearly four hundred pips in less than two days lifts RSI into overbought territory. The currency is also approaching a key fibonacci retracement at 1.423. Previous entries above 70 have often resulted in the euro falling from the top of an upper channel that began in April. The pair may pull back at least 100 pips following a range of nearly four hundred pips in the past two days toward the previous high set last Friday at 1.4049. Long term direction however seems to indicate further strength for the euro as risk appetite remains high and optimism floods investors out of dollars and US treasury bonds.

Technical signals are pointing to further upside ahead for EURUSD following a “golden cross” as the 50-day moving average went above the 200-day SMA on Monday for the first time since last September. The pair has begun to gain significantly following a near 38.2% retracement of the rise from 1.3422 to 1.4049. Recent movement is eerily similar to two previous patterns in which the pair initiated roughly 700 pip uptrends following retracements near the 38.2% fib of prior respective moves. Should this repeat itself, the stage may be set for the euro to head toward its December’s high close of 1.4416. Specifically, the euro’s recent low of 1.3791 could set the climb to approximately 1.4491 at which point significant resistance would be met.

Next week’s fundamental indicators and announcements could serve as catalysts for volatile action. Chief among these would be the ECB’s rate decision on Thursday in which the statement issued will likely serve as a bigger market mover than the expected decision for the rate to remain at one percent. Also on the European table will be preliminary Q1 GDP, retail sales, PMI data and unemployment figures. Domestically, friday’s release of US non-farm payrolls may support upside in the pair should layoffs narrow significantly from the previous 539,000 in April. Economists polled by Bloomberg expect the measure to narrow slightly to 521,000. Better-than expected data of under 500,000 would certainly raise optimism on a quick global recovery.

[I]Written by: Roman Kadinsky, DailyFX Research
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