Euro Struggles With $1.09 Cap But Finds Support in Risk Appetite

EUR/USD Main Talking Points:

• EUR/USD wilted a little in Asia and into the European morning
• Still, it remains above a key medium-term downtrend
• A better market risk tone is helping Euro bulls, but the ECB is still tipped to cut rates before the Fed
• EUR/USD is the most liquid currency pair in the world, offering traders a convenient, cost-effective market to trade. Find out what else EUR/USD and the other highly liquid pairs have to offer FX traders:

The Euro continued to find the $1.09 handle hard to top as a new trading week got under way on Monday.

EUR/USD’s daily range was narrow thanks to a dearth of new trading cues, although there are likely to be plenty in the week ahead which is full of Federal Reserve speakers, with Treasury Secretary Janet Yellen also on the slate.

The Euro remains underpinned by the revival in risk appetite which has tended to broadly knock the Dollar and send global stock markets shooting higher. Its pep has markets a little edgy, however, given monetary fundamentals’ clear tendency to reassert themselves. Everything will depend on the data flow, of course, but, at present, markets wouldn’t be at all surprised to see the European Central Bank cut interest rates next month. They reckon the Fed will be holding off at least until September.

This is a huge contrast with the situation at the start of this year, when the Fed was tipped to cut faster and harder than any other developed-market central bank. The resilience of US inflation since has caused most of the rethink.

EUR/USD has risen quite sharply from the highs of mid-April, breaking through a medium-term downtrend line in the process. While reversals needn’t be sharp, it’s no stretch to think that the pair might now be a little overextended and that Dollar buyers might well make progress above $1.09 very difficult, especially if EUR/USD spikes sharply higher in the near-term.

In any event the Dollar will probably set the pace into the end of this week, with the first major Eurozone data release not due until Thursday. That will see the release of German Purchasing Managers Index figures for May. The manufacturing sector is expected to remain well in contraction territory, if perhaps not quite so deeply as it was in April.

EUR/USD Technical Analysis

EUR/USD Daily Chart Compiled Using TradingView

EUR/USD has popped above the downtrend line from December 29, but Euro bulls have yet to look comfortable there.

Psychological resistance at 1.09 remains elusive but is very close to the market now. Still, the broad uptrend channel from April 15 remains very much in place, with its upper bound at 1.08931 containing the bulls for now. The lower bound doesn’t come in until 1.07500, and EUR/USD hasn’t been down there since May 9.

If the single currency can remain within the range that dominated between March 6 and March 21 then it may well be set for further gains. That range is bounded by March 7’s low of 1.08647 and March 8’s intraday peak of 1.09847.

–By David Cottle for DailyFX