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The EUR/USD exchange rate is quoted at 1.1447 at the time of writing on Monday, with analyst and technical forecaster Richard Perry of Hantec Markets looking for gains to extend to a crucial resistance area.
The euro has started the new trading week on strong ground.
It is a testament to the belief that traders have that EU politicians can push the process of the EU Recovery Fund forward.
Technically, Friday’s close above $1.1420 was a key moment, and continuing this move early today shows that the bulls are ready this time and the outlook for EUR/USD is ever-improving.
Near term weakness is being consistently bought into as the market pushes higher within an uptrend channel of the past three weeks.
Momentum is confirming the move higher, with the RSI into the high 60s (at five week highs), whilst MACD lines are rising and Stochastics strong.
This morning we see the market looking to push above $1.1450 (last week’s high above the June high) to a level not seen since March’s spike high of $1.1490.
This is a market moving towards the crucial resistance band of $1.1490/$1.1500 which has been a barrier for almost two years.
Given the political decisions still to be made (discussions on the EU Recovery Fund resume today at 1500BST), there is still potential for near term volatility.
We would though continue to view supported weakness as a chance to buy. There is strengthening support $1.1350/$1.1370, with the importance of $1.1255 growing as a higher low.
Above $1.1500 there is resistance initially at $1.1570/$1.1620 but the way would essentially be open towards $1.1800 area.
Progress in Europe
Traders come to their desks on Monday with a cautious risk positive tone to sentiment. Europe is the focus this morning.
There have been three days of intense discussions over the format of the proposed EU Recovery Fund, and as yet no agreement on how the push forward.
However, the EU-27 are close.
For now, the “Frugal Four” (The Netherlands, Austria, Denmark and Sweden) are still standing in the way of agreement, but apparently Denmark is wavering and there is not too much between the two sides.
The proportion of grants and loans of the €750bn package seem to be the sticking points, and there could be potential rebates in the EU budget as further incentive to come to a deal. The talks resume at 1500BST today.
However, the feeling is that the talks are making progress. Markets are taking this all positively as it would be a strong signal that the EU-27 is willing to push ahead with political union and in allowing the European Commission to raise common debt, is a huge step forward on the path to fiscal union.
Core-periphery yield spreads are tightening (Italian 10 year BTPs over German Bund is around 162bps and the lowest since March) whilst the euro is strengthening.
Aside from the euro move, there is little real other direction on major markets aside from a shade of yen weakness. Equities are mixed into the European session, although US futures are unwinding the gains of Friday.