Forecasts Suggest Further Gains Lie Ahead for EUR/USD, But is Shared Currency now Overbought?

The only economic data points worth noting come from Germany, but as Boris Schlossberg at BK Asset Management says, this was largely ignored:

"The sudden emergence of geopolitical risk, pushed aside an economic considerations as markets ignored the relatively upbeat IFO data selling the euro in the aftermath of the news. The IFO beat expectations printing at 107.5 versus 107 eyed. The index stood at 106.2 in July.

"This was the fourth consecutive monthly increase in a row as German economy continues to shows signs of growth amidst steady domestic demand and improving conditions on the EZ as a whole."

Forecasting further gains for the Euro

The near-term forecasts for the Euro versus US dollar exchange rate suggest further upside potential.

Luc Luyet at MIG Bank says the upside should prevail but warns the Euro is overbought:

"EUR/USD remains in a succession of higher lows with a significant support at 1.3190 (02/08/2013 low). However, in the last few days, prices are struggling to move above the strong resistance at 1.3417.

"Given the increasing overbought conditions, the odds of a corrective phase are increasing. An initial support lies at 1.3298 (22/08/2013 low)."

Gareth Berry at UBS says he is bullish on EUR/USD:

"Initial resistance is at 1.3452, a break above which would open 1.3520 ahead of 1.3711. Support is at 1.3298 ahead of 1.3206."

Ipek Ozkardeskaya at Swissquote says the USD is likely to remain under pressure:

"Released yesterday, the US durable goods orders surprised on the downside, USD sold-off. EURUSD climbed to 1.3394 and consolidated above 1.3350. More bids trail above 1.3300 as USD is likely to remain under pressure."

Is Euro in overbought territory now?

Piet Lammens at KBC Markets echoes the concerns expressed by Luyet:

"The pair is in overbought territory and shows tentative signs of a topping out process. Trading below 1.3298 would be an indication of a further loss of momentum.

"A sustained break below 1.3190 would point to additional downside pressure. The trade-weighted dollar shows some tentative signs of bottoming out, too but further evidence is needed.

"For EUR/USD we have a cautious negative bias, but tight stop-loss protection on EUR/USD shorts remains warranted to protect a re-break beyond 1.3452."

Italian political risk reappears

Jeremy Cook at WorldFirst tells his clients that the Italian political landscape once again poses risks to the foreign exchange markets:

"Political news from Italy has also got investors slightly worried. Berlusconi’s PDL party decided over the weekend that it would be unacceptable for the former Prime Minister to be excluded from parliament despite his conviction and four year jail sentence for tax fraud.

"The PDL party is threatening to withdraw support from the country’s coalition if Berlusconi is banned; a situation that would likely lead to further elections in the Eurozone’s 3rd largest economy."

Kathy Lien at BK Asset Management says:

"The vote on evicting him from the government is scheduled for October.  If new elections are held, there may be no majority government and that could mean a complete standstill for fiscal reforms in Italy."