EUR/USD continues rallying higher as recent data has been positive for the Euro-area whislt increasing geopolitical risks have weighed on the Dollar.
The exchange rate has recovered after pulling back steeply from the 1.1909 highs - and is currently trading at 1.1822.
The uptrend is still intact despite the steep pull-back, and whilst another small corrective leg lower is possible, it would only be to complete the correction, down to support in the1.1700-1.1665 zone perhaps, before the uptrend resumed.
Ultimately we see the channel extending higher, with the possibility of a break above the 1.1909 highs, leading to a move up to the psychologically significant 1.2000 level, which is also at the level of the R1 monthly pivot.
Monthly pivots are areas of support and resistance on price charts where the exchange rate often stalls or reverses due to increased supply or demand at those levels.
Data for the Dollar
The Dollar is extremely undervalued compared to its fundamentals, according to many analysts and therfore due a come-back.
Positioning data, which shows the number of futures contracts held by large speculators, also shows an extreme predominance of bearish bets on the Dollar, suggesting the 'elastic is stretched' to the downside and the currency is due an upside revision.
One major driver for the Dollar in the week ahead is likely to be the course of geopolitical tension between the US and North Korea, which is probably - although by no means definately - likely to weaken the Dollar.
In disucssing how a possible war between the two nations would impact on the Dollar, Kathy Lien notes that:
"Taking a look at some of the major military conflicts over the last three decades, the Dollar suffers greatly when there is a war."
As far as hard data goes, the first major release is Retail Sales, on Tuesday at 13.30 BST, which is expected to show a 0.4% rise in July, from -0.2% previously.
The FOMC meeting minutes are out on Wednesday at 19.00 and could help determine the monetary policy outlook for the currency.
Building Permits and Housing Starts are out on Thursday at 13.30.
The Philidelphia Fed Manufacturing Index is out at 13.30 on Thursday, and is forecast to show an 18.0 result for August compared to 19.50 previously.
Data for the Euro
The week’s data for the Euro kicks off with the release of the ZEW economic sentiment gauge on Tuesday at 10.00 BST.
ZEW is calculated using survey data from interviews with 350 financial professionals and reflects their view of the economy, it is a reliable forward indicator for the economy.
Wednesday’s Euro-area GDP data is the second estimate and is forecast to reiterate the preliminary result which showed a very positive 2.1% year-on-year (yoy) growth rate in the second quarter and 0.6% quarter-on-quarter (qoq).
Thursday, August 17, sees the release of Eurozone Inflation data in July.
It is forecast to show a rise of 1.3% yoy but a -0.5% month-on-month (mom).
Inflation impacts on European Central Bank (ECB) decision-making and a weaker-than-expected inflation print could see the ECB keep its policy statement unchanged in the future.
Also on Thursday, the ECB will publish the minutes from its July rate meeting, which will be scrutinized for whether the ECB is closer to winding down its ultra-accommodative stance on monetary policy.
The more likely it is the ECB will start to reduce stimulus the more the Euro is likely to rise, because stimulus has a dampening effect on the currency.