'Line in the Sand' at 1.2995 Could Cap EUR/USD Rally

Euro Rate Today: The euro dollar rate (EUR/USD) continues to climb in value following news that the majority of European banks have passed a recent health test at the European Central Bank.

Improving equity market sentiment is also helping shift funds back into Europe, bidding up the currency in the process.

Further aiding the shared currency is a softer USD, the currency has been hurt by soft data as of late and has added fuel to the bounce higher across the euro exchange rate complex. The move comes after a tough few months for those who have been holding out for higher levels in the single currency.

However, these could be the best levels those hoping for a stronger euro are likely to experience in a while - forecasters are predicting the longer-term decline in the euro dollar to ultimately recommence.

This is what the euro dollar exchange rate currently looks like: (On 29/10 euro dollar = 1.2735).

NOTE: The above levels, and all rates quoted here, are from the inter-bank markets - your bank will affix a spread at their discretion when passing on a retail rate. However, an independent provider will seek to undercut your bank, thereby delivering up to 5% more FX in some instances. Please find out more.

Euro Boosted by Stress Test Results

The release over the weekend of the stress tests on European banks has been welcomed by currency markets who have bougth the euro.

The expectations were that we would see Greek, Cypriot, Portuguese and Spanish banks come in with some worrying figures, but apprehension was offset by some positive data out of German the Eurozone’s flagship economy.

"In actuality the bank stress tests seem to have had less market impact than expected. Italy seemed to have the longest list of banks that needed additional funds and quite remarkably Spain had none. It has to be remembered that a lot of banks have been raising additional funds in the last year so overall it seems these stress tests have had the desired results," notes Charles Purdy at currency brokerage Smart Currency Business.

What Do the Forecasters Say?

The outlook for the euro dollar exchange rate is currently dominated by resistance located at 1.2800 and then 1.2900 further up.

According to Piet Lammens at KBC Markets the latter figure is likely to provide the most important zone of resistance:

"In a longer perspective, we still think that dollar strength will prevail. So, we would see any euro strengthening as temporary in nature. Technically, the 1.2995 resistance is the line in the sand, but we don’t expect this to be approached today."

"The technical picture of EUR/USD deteriorated after the break below the key 1.2662 support level (Nov 2012 low). We have a LT negative bias on EUR/USD. The trend is intact, but the price action over the last two weeks suggests that the market was too long USD.

"In the meantime, dollar overbought conditions have been worked off. The 1.2043/1.1877 support is the next LT target, but a drop below 1.25 is needed before the picture becomes again dollar bullish ST. A re-break above 1.2995 would be really significant and question longstanding EUR/USD downtrend. This is not our preferred scenario though."

According to Karen Jones at CommerzBank the currency pair is likely to enter a sideways trading pattern:

"EUR/USD held the initial test of the 1.2605 support last week and has seen a minor rebound. This has been enough to neutralise the intraday indicators and we suspect some further near term ranging will be seen.

"Last week the market has recently charted an outside day to the downside and severed its short term uptrend. This suggests that the market should eventually come under pressure. We target the 1.2500/1.2460 supports (recent low and 78.6% retracement)."

The Longer-Term Trend is Down

Looking towards year-end and early 2015 we note the outlook favours the USD.

Luc Luyet, analyst at Swissquote Bank tells us:

"EUR/USD needs to break the hourly resistance at 1.2743 to alleviate concerns of a quick decline towards the key support at 1.2501. Another resistance stands at 1.2845 (16/10/2014 high), while an hourly support can be found at 1.2614 (23/10/2014 low).

"In the longer term, EUR/USD is in a downtrend since May 2014. The break of the strong support area between 1.2755 (09/07/2013 low) and 1.2662 (13/11/2012 low) has opened the way for a decline towards the strong support at 1.2043 (24/07/2012 low).

"As a result, the recent strength in EUR/USD is seen as a countertrend move. A key resistance stands at 1.2995 (16/09/2014 high)."