- The EUR/USD is extending its gains and reaches the highest levels in two weeks.
- Trade-related USD weakness and optimism about the ECB are the primary drivers.
- The technical picture is almost entirely balanced after a long time in the doldrums.
The EUR/USD is moving higher, trading above 1.1750 and at the highest levels since May 23rd. The latest boost for the common currency came from reports that the European Central Bank will have a live discussion on exiting the QE program in its upcoming meeting on June 14th. So far, the ECB seemed to be trying to push the decision to the last moment. The current scheme consists of buying €30 billion per month through September. Markets expect the program to be reduced afterward and end at the end of the year.
After the recent rate decision in April, Draghi said there was no discussion about monetary policy, and his words weighed on the Euro. The reports about a discussion join the beat in euro-zone inflation seen reported last week. It is also joined by relatively upbeat speeches by ECB members Praet, Hanson, and Weidmann. All expressed confidence in reaching the 2% inflation target.
The Euro initially stabilized on political calm in Italy. After a turbulent week that saw fears of an Italexit swell, the populist government won votes of confidence in both chambers of parliament. The policies that will come from the new government still cause concern, but these concerns are sidelined now.
In the US, the Trump Administration is not relenting on steel and aluminum tariffs on the EU nor its NAFTA partners. Moreover, the Top Economic Adviser Larry Kudlow said Trump is contemplating splitting NAFTA into separate deals with Canada and Mexico. The tough approach to trade weighs on the US Dollar.
EUR/USD Technical Analysis
The EUR/USD not only broke above the downtrend resistance line but is now also seeing its RSI move towards the balanced territory of 50. Also, downward momentum which dominated the pair for a long time has now diminished.
1.1767 is the immediate battle line after supporting the pair on its way down. The May 9th low of 1.1822 is the next level to watch. 1.1915 was the January low and is next.
On the downside we find 1.1648 which was the close on May 25th, followed by 1.1610, a stepping stone on the way down, and finally the low point of 2018 which was 1.1510.
More: EUR/USD targets 1.1870 after the big breakout — Confluence Detector
