Market Update – December 27, 2017
The end of year flows brought exactly what we’ve envisioned here last week: a higher Euro all over the dashboard. For whatever the reason, the common currency acts extremely bid, and buyers step in at every dip.
EURUSD now sits comfortably around 1.19 with the next battle to come at the all-important 1.20 level. In fact, the rise from 1.05 area to 1.20 was the main 2017 trend. Anyone missing that move that started in April missed the Forex price action of the year.
The recent months brought only consolidation, in the sense that the dips below 1.20 were nothing but an excuse for buyers to step in.
Not even the Fed rate hike wasn’t enough to bring the pair down. In fact, it rose on the announcement.
Draghi and Co. tried to send it down too. Yet, buyers stubbornly came back, and not only on the EURUSD pair.
The other Euro pairs moved higher too. EURJPY broke out of a bullish triangle and now tackles the 135 level. A clear break will open the gates for nothing but the round number: 140.
I know it sounds like an impossible task, but given the price action around the Euro pairs, it should be only a bump in the road. The EURGBP acts bullish too.
The pair broke lower from a limiting triangle, only to find buyers below 0.88 and now threatens to move back above 0.89 and 0.90. Brexit is still an issue, but if we are to see the Euro squeeze preached here, then the EURGBP will follow the same path.
It seems that the market participants are caught on the wrong foot here. Many played a safe hand: with the Fed in the middle of a tightening cycle, the USD can’t move lower.
Moreover, the ECB keeps a dovish tone and the U.S. administration’s policy favors a stronger dollar if the companies will repatriate cash after the tax breaks. Still, the dollar fails to move higher and retail traders scratch their heads to find out the right reason for it.
Conclusion
Providing nothing changes (and it may very well be so), the path of least resistance is for the Euro to continue to squeeze higher and the dollar to keep the current levels against other currencies.
If anything, this low liquidity environment will amplify the moves in any break. As such, 1.20 in the EURUSD pair may be just around the corner.
Also published on Medium.
