Euro-Dollar: Move Above 1.10 Viable Show Technicals, But Beware Near-term Cap

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The Euro's rally against the Dollar could be capped near current levels in the short term according to a new technical analysis of the pair, however the Euro is expected to remain strong and eventually reach new highs.

This is according to technical strategists at Credit Suisse who say the Euro to Dollar exchange rate (EUR/USD) has now risen to their "core target" of 1.0900/44, which is the 50% retracement of the 2021/2022 fall and back of the broken uptrend from early 2017.

"With this also the upper end of the trend channel from last September, we continue to look for this to cap and for this to define the upper end of a broad range," says David Sneddon, a technical analyst at Credit Suisse.

EUR/USD has risen 13.5% since its late September lows and is at 1.0859 at the time of writing.

Fundamental drivers of the rebound include lower European Union gas prices, the reopening of the Chinese economy, an expected termination of the Federal Reserve's rate hiking cycle and expectations for further 50 basis point hikes from the European Central Bank.

However, these positive developments are now well understood by the market and the prospect for the rally to ease is therefore increasingly likely, particularly if technical hurdles litter the road higher.

ALthough Credit Suisse's technical analysis identifies a potential cap in the near-term, the "bigger picture" remains one of ongoing strength.

"The EUR itself is likely to stay strong in our view and we suspect that a peak here, if indeed even seen, will now likely be temporary only ahead of an eventual break higher, with resistance next at 1.1055, then the 1.1185 March 2022 high," says Sneddon.