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EURO : Bull Flag

(Wed, 16 Dec 2020). The Euro has lagged some of its major peers as global risk appetite improves around Brexit and US fiscal stimulus headlines. Both EUR/JPY and EUR/USD rates have retained their bullish posture, however, and bull flags that have been carved out thus far through December suggest more gains may be around the corner.

 

EURO HOLDING ITS OWN AS RISK APPETITE IMPROVES

The Euro has not been a top performing major currency this week, trailing some of its majorpeers as global risk appetite improves around Brexit and US fiscal stimulus headlines. That’s not to the Euro’s discredit; traders are looking for higher yielding and growth-linked assets like the commodity currencies (EUR/AUD, EUR/CAD, EUR/NZD).

But two EUR-crosses have retained their bullish posture, and bull flags in both EUR/JPY and EUR/USD rates that have been carved out thus far through December suggest more gains may be around the corner. With the DXY Index, of which the Euro is the largest component at 57.6%, heading to fresh yearly and two-year lows, the prevailing macro environment is sinking safe havens like the US Dollar (as well as the Japanese Yen).

 

EUR/USD RATE TECHNICAL ANALYSIS: DAILY CHART (DECEMBER 2019 TO DECEMBER 2020)

EUR/USD rates are in the midst of carving out a bull flag following the bullish breakout above sideways range resistance in place since late-June. It remains the case that “final targets for a simple doubling of the broader range dating back to late-June would suggest gains through 1.2600 in the coming months.” The more near-term range carved out thus far in December between 1.2059 and 1.2178 (119-pips) suggests an immediate upside target of 1.2297.

Contextually, EUR/USD rates have been holding above the downtrend from the 2008 and 2014 highs (from the all-time high), and EUR/USD rates are back above their daily 5-, 8-, 13-, and 21-EMA envelope, which is in bullish sequential order. Daily MACD is still trending higher above its signal line, while Slow Stochastics are holding in overbought territory. A bullish breakout may be around the corner.

 

EUR/JPY RATE TECHNICAL ANALYSIS: DAILY CHART (DECEMBER 2019 TO DECEMBER 2020)

EUR/JPY rates are like EUR/USD rates, insofar as the bull flag carved out thus far in December has yet to yield a breakout. The more near-term range carved out thus far in December between 125.79 and 126.74 (95-pips) suggests an immediate upside target of 127.69. However, momentum indicators are less bullish for EUR/JPY rates than EUR/USD rates.

EUR/JPY rates are now below their daily 5- and 8-EMAs, even though the daily 5-, 8-, 13-, and 21-EMA envelope is still in bullish sequential order. Daily MACD has narrowed and may turn lower above its signal line, while daily Slow Stochastics appear ready to pullback from overbought condition. Even if these indicators do not turn, the mere suggestion that they are not in bullish posture suggests that a bullish breakout in EUR/JPY rates may not be on the imminent horizon.

Amid the hold in the range, EUR/JPY rates are still trading near their early-September highs, capped just below the 38.2% Fibonacci retracement of the 2016 low/2018 high range at 126.70. Furthermore, EUR/JPY rates have found resistance at the ascending trendline from the July 2012 and June 2016 lows, a trendline that has been tested multiple times the past year.

Accordingly, it remains the case that “a bullish breakout to fresh yearly highs above 127.08 would be a material accomplishment,” one that would warrant a longer-term bullish outlook for EUR/JPY rates.

 

 

 

 

 

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