The EURUSD closed another week with some modest gains as the common currency managed to capture the 1.1800 price handle. By last Friday’s close, 12 August, the euro closed at 1.1820 against the U.S. dollar. With last week’s gains, the euro has now appreciated for five consecutive weeks.
The gains in the euro come amid a mix of both political and macroeconomic factors. On the one hand, the rising tensions between North Korea and the United States managed to give a boost to the euro. This comes on top of the fact about the uncertainty on the policies from the President Trump.
On a macroeconomic level, improving trends in the eurozone on inflation, unemployment, and GDP has boosted the prospects of policy tightening from the European Central Bank.
Despite the recent uptick in the exchange rate, the central bank is expected to look through this. Analysts have now upgraded their forecasts for the euro. It was only a few quarters ago that talks about EURUSD parity dominated the headlines. However, with forecasts now pointed to the upside for the euro, there is a strong chance that a mix of the above factors could validate this view.
On a year to date basis, the common currency has appreciated 12.39% as of Friday, 12 August.
The gains in the euro came about after the famous speech by ECB President Mario Draghi in Sintra, Portugal. Mr. Draghi came out strongly hawkish which set the tone for the rally in the EURUSD.
Eurozone GDP and flash inflation data in focus
This week, the eurozone’s flash GDP data will be published. On a quarterly basis, the Eurozone GDP is forecast to rise 0.6%. This would mark a steady pace of increase as in the first quarter, where GDP rose 0.6%. On a year over year basis, GDP in the Eurozone is forecast to remain steady at 2.1%.
Later in the week, flash inflation estimates for August is forecast to show a steady pace in consumer prices. Headline inflation is forecast to rise 1.3% while core inflation rate is expected to rise 1.2%. This makes it the same pace of increase as seen in July.
September – FOMC and the ECB
The Fed will be releasing its meeting minutes this week. But the markets are quite certain despite the weak inflation; the Fed will begin its balance sheet normalization in September. On the same note, the ECB is also expected to announce another taper to its QE program.
The ECB’s tapering could potentially begin from January when the current QE purchases run out. However, this narrative could change should there be more evidence of a pickup in the Eurozone’s economy.
Thus, September will be a key month for the common currency.
EURUSD – Will the bullish bias remain?
From a technical perspective, the EURUSD is likely to continue to maintain the gains. The line in the sand is the technical support at 1.1450. This marks a key level that previously served as resistance. Following the breakout from this level in July, a retracement is likely to establish support here.
To the upside, the unfilled gap at 1.2000 from December 2014 will be the target to the upside. A continued rally in the EURUSD could signal a retest of this level. But this could also mean that the common currency could hit resistance, thus paving the way to the downside.
In the event that the currency pair fails to rebound at 1.1450, we could expect further declines to the next main support level at 1.0892 – 1.0728.
