EUR/USD has escaped the nice wedge it traded in, and chose the upside. The clear breakout above 1.14Â sent the pair to the next resistance line.
What is behind the move? What are the next lines? Here are some answers:
3 reasons for the rise
- Optimism about Greece: After just over a week in office, the new government seems to align itself with German demands about repaying its debt. While a step back from pre-election rhetoric was certainly expected, it provides a relief to the euro-zone. In addition, the compromise that might arise, a GDP-linked payback of debt, is well received in Greek markets. And while Merkel may drag her legs on a full solution for months, it seems likely that the danger of a Greek exit by PM Alexis Tsipras, or “Alexitâ€, is off the cards, at least for now.
- Weak US data: The plunge in factory orders joined a disappointing ISM Manufacturing PMI that joined other underwhelming numbers. Together with yet another bad winter in the US that could slow growth, the prospects for a rate hike coming sooner rather than later seem to diminish.
- Some positive European data: While the inflation measures show deeper deflation, other figures are beginning to move in the right direction: unemployment was stuck at 11.5% for a long time and it ticked down to 11.4%. Spain and Germany stand out in the improvements, even though the former has a longer way to go than the latter. Spain also posted strong GDP growth. Perhaps deflation is not too bad for growth? In any case, the ECB’s QE is already a done deal.
EUR/USD
As the chart below shows, we have a clear breakout above the wedge and a move above 1.1373. The pair fell short of the next resistance line at 1.1460 which was a low line in January.
Beyond this line, we have some resistance at 1.1540 followed by 1.1650. To the downside, support is found at 1.1290, followed by 1.12 and 1.111.
The big question remains: is this a correction before the next fall or the big turnaround?
More: Is EUR/USD Recovery A Game-Change?: Levels & Targets – JP Morgan
Here is the chart:
