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The EUR/USD exchange rate rallied to 1.1412 - a new multi-month high - on Wednesday and has since faded to 1.1413 on Thursday. The pullback looks shallow leading analyst and technical forecaster Richard Perry to maintain a bullish stance on the pair.
After a run of strong bull candles, the bulls had a look at a breakout to a new multi-month high yesterday, above $1.1420.
The move could not be sustained into the close, but the sentiment is still strong.
The question is now of whether confidence in a run higher has been damaged. A failed break coming ahead of the ECB monetary policy meeting today and the EU Recovery Fund discussions tomorrow is slightly concerning.
However, for now, the bullish outlook for EUR/USD remains intact. In breaking above $1.1420 yesterday, the support of the previous resistance around $1.1350 grows in importance.
With momentum of the move higher still strong (despite yesterday’s slight disappointment) we would now view supported weakness within this $1.1350/$1.1420 band as being an opportunity for the bulls.
With the MACD lines rising off a bull cross, Stochastics strong above 80 and RSI above 60, these are momentum conditions set up for a sustainable upside break.
Once these key fundamental events are passed (i.e. by Monday), a close above $1.1420 would be a key break.
It would then open a test of the hugely importance resistance $1.1490/$10.1500 which has been a barrier for the past two years. A close back under $1.1350 is a disappointment, but only under $1.1255 have the bulls lost control.
A slight tempering of the recent surge in risk appetite has taken hold today.
Positive newsflow in recent days over the progress of COVID-19 vaccines (one from US pharma company Moderna, and one out of Oxford University) show that vaccines are in the pipeline.
If this turns out to be the case, this will be the one true way that risk appetite can sustainably recover.
However, economic data out of China overnight, suggests that in the meantime, economic recovery may be wobbly. Whilst GDP for Q2 came in ahead of expectations (at +3.2%, versus expectations of +2.5%), there was concerning data regarding consumers in China.
Retail Sales showed a disappointing -1.8% decline in June, a point at which China was fully out of lockdown.
The consumer may still only account for around half the Chinese economy, and industrial production grew as expected, however, it is the read through to other, more consumer driven economies, which is the concern.
The US is struggling to get its economy out of lockdown as infection rates are at record levels. This does not bode well for consumer confidence and retail sales in the coming months.
June’s Today’s data will show a strong rebound in June, but concerns are for the months in Q3 which will be impacted by the second wave of infections (that’s if the first wave ever really finished).
We have a major central bank today on the docket, but the ECB is likely to be very much in wait and see mode, with the extended easing measures undertaken in June.