Euro could extend recovery with daily close above 1.1670 / 80
- EUR / USD has been moving in an ascending channel since the start of the week.
- Widespread selling pressure surrounding the dollar is helping EUR / USD to rise.
- Further gains are likely if EUR / USD manages to break through 1.1670 resistance.
The EUR / USD The pair maintained its bullish momentum and posted its highest daily close since late September at 1.1650 on Wednesday, supported by continued weakness in the USD. However, it is still too early to say that the recent advance is the start of a reversal rather than a correction, as investors should not ignore the European Central Bank (ECB) ‘s accommodative outlook for long. For now, technical levels could determine the short-term direction of the pair.
Wednesday, Jens Weidmann, European Central Bank (ECB) member of the Governing Council and President of the Bundesbank, has announced that he will resign from his post at the end of the year.
Weidmann was a known hawk as well as a strong critic of the ECB’s ultra-accommodative monetary policy and his exit means the bank won’t face strong opposition if it continues to downplay inflation concerns in the eurozone. In addition, François Villeroy de Galhau, member of the ECB’s Governing Council, reaffirmed that the ECB could afford to remain patient as the peak inflation should remain temporary.
In the meantime, the greenback remains in decline as the rally in Wall Street allows risk flows to continue to dominate financial markets.
Later in the session, the weekly initial jobless claims, the October Philadelphia Fed manufacturing survey and September’s existing home sales will appear on the U.S. economic record. On the other hand, the European Commission will release preliminary consumer confidence data for the euro area at 1400 GMT.
In the event that US equities reverse direction and the benchmark index Yield on 10-year US Treasury bonds manages to hold close to multi-month highs, EUR / USD may struggle to attract buyers. On the other hand, a technical breakout could allow the bullish bias to remain intact before the weekend.
EUR / USD technical analysis
For the second time this week, the EUR / USD lost strength after moving closer to the 1.1670 / 80 area, where the 38.2 Fibonacci retracement of the September downtrend and the 200-period SMA on the chart of four hours line up. A daily close above this resistance zone could be seen as a bullish development and open the door for further gains towards 1.1700 (psychological level) and 1.1720 (50% Fibonacci retracement).
On the downside, initial support stands at 1.1630 / 20 (20 period SMA, 23.6% Fibonacci retracement) ahead of 1.1600 (psychological level, 100 period SMA, 50 period SMA) and 1.1560 (static level).