Speculators Eye Gains Towards 1.15 in EUR-USD

Strategists have had to adjust their expectations on the euro exchange rate complex in the wake of recent strength. Targets towards 1.15 are being eyed.

"We still believe the gains in the EUR/USD are corrective, but purely technically alone this range breakout can allow for some upside extension. 1.1275-1.1500 is a very strong technical resistance zone." - Lloyds Bank.

The euro has powered higher against the US dollar on fresh confirmation that the US economy has slowed down.

GDP data for the first quarter of 2015 showed growth of 0.2% was achieved, well below forecasts for 1%.

Currency market players are now betting the US Federal Reserve will push back the timing of its first interest rate rise of the new tightening cycle with many pricing in a November/December move and selling the USD as a result.

We have been monitoring the testing of a key resistance level in the euro to dollar rate (EUR-USD) for much of April noting that euro buyers quickly dissipate as nerves set in at the 1.10 barrier.

The ability to break the 1.10 level, it is argued, could well foster further buying interest for a rally even higher towards 1.12 and then 1.15 in extension.

At the time of writing the euro to dollar exchange rate (EURUSD) has broken higher through this barrier and is testing the first target at 1.12.

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Time to Sell?

According to Bank of America’s MacNeil Curry the downtrend is about to start and speculators should be ready to profit on this strong recovery in the EUR.

In a note to clients Curry argues for the longer-term trade in EUR-USD:

“Since mid-March, €/$ has been caught in an increasingly well defined contracting range. While this range can persist for another week or two, it is nearing its conclusion.

“Indeed price should not exceed 1.0932/1.1000 (55d MA and Triangle resistance) and can't exceed the Mar-26 high at 1.1053.

“With seasonality about to turn bearish (May is the second weakest month of the year for €/$), its almost time to get short again.

GET READY. Downside targets are seen to 1.0283 ahead of parity. Below 1.0550/1.0521 (Triangle support & Apr-13 low) says the downtrend has resumed.”

At the time of writing we note that the price in EUR-USD has exceeded the ceilings suggested by Curry.

However, the broader argument that the downside must resume is an interesting counter-balance to the sudden rush back into the Eurozone currency.

We agree with many in the markets however and argue that now may not be the time to sell the EUR-USD.

We would look for some solid improvements in US data which would go some way in confirming that the current weakness in US economic growth is temporary.

If monthly economic data releases can continue to improve through April it would indicate that the economy is over its winter blip.

This fundamental observation would then confirm that the technical argument for a fall in euro dollar to parity is a valid one.

1.15 Being Eyed by Traders

For now though we get the sense that the rally higher in the euro to dollar exchange rate could continue.

Lloyds Bank confirm that such a move higher does still fall within the more general theme of a weaker euro in the longer term:

"We still believe the gains in the EUR/USD are corrective, but purely technically alone this range breakout can allow for some upside extension. 1.1275-1.1500 is a very strong technical resistance zone to be mindful of in that regard."

Also eyeing a recovery to 1.15 is Piet Lammens at KBC in Holland:

"After yesterday’s sharp swings. EUR/USD has found a new equilibrium in the 1.11 area."

Lammens reckons that for EUR/USD the early February top at 1.1534 is the next high profile reference on the charts.

However the pace of the climb higher could easse suggest the analyst:

"Even as the MT technical picture turned less USD positive, we don’t have the impression that the dollar is already ripe for further follow-through losses right now. If the US eco data stop surprising on the downside/surprise on the upside, there might even by room for a USD rebound in a daily perspective."

We see the next big test for the USD coming in the first Friday of May when the all-important US Non-Farm Payroll figures are released.