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Euro isn't strong enough for Draghi to talk it down - Growing scope for cable upside breakout

Posted by Marge Maresca on Sep 6, 2017 11:02:42 AM


Euro isn't strong enough for Draghi to talk it down
ECB chief Draghi is unlikely to talk the euro down this week as the currency isn't that strong. It is the dollar that is weak. EUR/USD is yet to recover half the losses that evolved under the ECB's dovish monetary policy having only narrowly avoided a drop below parity early this year. Adding to the notion that the euro and euro zone were failing, a move below parity would likely have resulted in intervention. The ECB has purchased euros at sub-parity levels, buying shortly after the euro's launch and again versus the yen to assist the BOJ a few years later. Notably, the ECB has not sold euros before. The euro is also still weak versus the timeline of ECB policy actions. EUR/USD traded a 1.3213-1.4168 range May 2009 when the buying of covered bonds/corp debt was announced. It was close to 1.4000 when Draghi promised all to save the euro zone, 1.36 when a negative deposit rate was introduced and 1.2109 Jauary 2015 when the expanded asset programme began.

CHART FOCUS - (Source:ThompsonReuters)
Growing scope for cable upside breakout
Cable upside has further to run and gains could extend to the top of the weekly cloud at 1.3257. That top coincides with the 50% Fibo retracement of the June to December 2016 1.5022 to 1.1491 drop. The price spiked just above that level to the 2017 1.3267 peak on Aug 3 but failed to hold. With the weekly slow stochastic rebounding from oversold levels, and bullish momentum building on the daily charts following the break above 1.3000, a return to the mid-1.3200s is likely. In the event of a sustained 1.3257 break, resistance is thin until the September 2016 1.3445 high, then the 61.8% Fibo of the aforementioned 1.5022-1.1491 fall at 1.3673. Closer to market, the daily cloud top at 1.3062 is key for short-term gains. Only a break below the cloud at 1.2920 would deter the bulls. Chart 1) Chart 2)


Topics: US FX Market Open


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