Euro / Dollar Rate on Course for 1.25 and Beyond: MUFG and TWP

- Euro has been one of the best performing currencies during the recent bout of volatility

- EUR/USD may still be a buy candidate as it tries to re-touch the range highs

- ECB-inspired volatility in Euro seen waning, which could be a positive

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The Euro-to-Dollar exchange rate is eyeing range highs and beyond as Dollar weakness extends argue analysts at MUFG and TWP who reckon the recent period of consolidation seen in the pair will likely resolve towards the upside.

The call comes as the Euro has managed to hold onto its current trading levels remarkably well during a flare-up in concerns over the future of trade relations in the global economy now that the US Presidency is eyeing an America-First trade agenda.

While the Euro looks well supported, the EUR/USD exchange rate is still yet to embark on a decisive resumption of its 2017 rally which appears to have stalled in 2018.

"Having reached as high as 1.2477 yesterday, the EUR has fallen back to just above 1.24 now. The EUR has failed to decisively break above 1.25 on several occasions so far this year, and some profit-taking in advance of this level was to be expected," says Nick Smyth at BNZ in Aukland.

Consolidation certainly appears to be the theme at present, but we are told patience will eventually be rewarded and the Euro will more likely than not extend higher.

"Price action in the FX market highlights the potential for holding the Euro in the financial markets during these uncertain times," says Derek Halpenny, an analyst at MUFG. "The only currencies bettering the Euro were the Pound, following the Brexit transition deal, and the Norwegian Krone."

The Euro, it appears, continues to benefit from safe-haven flows which augment during times of stress when spooked investors start liquidating risky assets and repatriate Euros.

The incredibly cheap borrowing costs in the EUrozone make it an especially attractive funding currency for investors seeking capital to buy riskier assets. During times of crisis, however, jittery investors jettison their risky holdings and bring home the Euros.

This characteristic of the currency has been underpinned by the sensible gradualism of the European Central Bank (ECB) the body tasked with setting interest rates (which dictate borrowing costs) in the Eurozone.

"The ECB also plays an important role. Nobody would argue with the view that ECB monetary policy has been remarkably predictable of late and when change comes it is minor. This removes another source of volatility," says Halpenny.

Another reason for the stability of the currency is that the EUR/USD is at its long-term equilibrium level, or 'fair value', and this also reduces big up or downside bets.

With markets settling down now, however, and trade tensions easing, will the Euro's day's benefiting from safety flows come to an end?

It seems possible, also given the other main driver for the Euro - economic improvement - appears to have peaked, the outlook from a fundamental perspective has deteriorated.

Yet despite this, Halpenny sees further upside as likely for EUR/USD, but this time as a result of 'technical factors'.

"We see the greatest risk of this low euro volatility coming to an end due to technical factors. A fourth attempt of the EUR/USD to breach the 1.2500 level would likely fuel a sharper move to the upside which in turn could create a degree of uncertainty over the monetary policy outlook," says Halpenny.

The case for a technical rise is shared by TradeWithPrecision's (TWP's) trader and presenter, Hao Sun.

Sun sees the potential for a rise in the short-term from the current market level in the 1.24s up to the former highs at 1.2540.

"Looks short-termwise really bullish, at least to retest the old range highs at 1.2540. On the weekly chart it is in a strong bullish uptrend, which means longer-term momentum is still on the upside," says Sun.

Sun follows a trend-flow strategy which helps traders to find a good entry level at which to join an existing trend. The entry level is usually between the 10 and 20 simple moving average of the price and sometimes reinforced by other levels on the chart too.

In the case of EUR/USD Sun says he is seeking a pull-back into the buy-zone and the former highs at 1.2400-20, which he sees as providing a bed of support form which the trend higher may resume.

"The key level I am stalking on the 4hr chart is at 1.2400 where there are multiple historic highs," says Sun.

After that, he will wait for a bullish candlestick reversal, such as a hammer to form to confirm a reversal higher.

"If it pulls back into the moving average buy-zone then this will be a really good trend flow potential set-up on the 4hr chart from 1.2400 up to 1.2540, with potentially 140 pips window," adds the trader.

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