EUR/USD – Breakout Levels

EUR/USD – Breakout Levels

EUR/USD – Breakout Levels

The EUR/USD is in focus with the European Central Bank making a monetary policy announcement on Thursday. This morning the OECD raised its GDP forecasts for the Eurozone to 1.6% from 1.4% and if a similar move is made by ECB tomorrow we could see new highs in the euro. No one expects the ECB to change monetary policy and with the TLTRO and corporate bond-buying program still in queue, the central bank will want to give current stimulus measures more time to work. We’ve also seen mixed performance in the Eurozone economy since the last meeting in April. Consumer spending in Germany and the Eurozone as a whole weakened, price pressures fell, economic activity in the Eurozone slowed according to the Composite PMI index and market measures declined. Yet we see German confidence on the rise, German manufacturing and service sector activity accelerate and most importantly the German unemployment rate drop to its lowest level on record. This tells us that the Eurozone’s largest economy is performing well enough for the central bank to consider raising its GDP forecast. But ECB President Draghi’s tone is always important and if we are wrong and the ECB lowers their GDP forecast with Draghi expressing renewed concerns about the peripheral economy, EUR/USD will tank.

Technically, EUR/USD is prime for a breakout. The currency pair has been trapped between the 100 and 200 day SMAs as well as two major Fibonacci levels – the 38.2% and 50% Fib retracements of the 2015 to 2016 rally. The upside has more resistance with the 50% Fib of the 2000 to 2008 move sitting right above 1.1200. If EUR/USD breaks the May 23rd high of 1.1243, the next stop will be 1.1300. However if it drops below 1.1070, it will sink to 1.10.

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