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EUR/USD May Have Bottomed

The Euro has recently been on a downward pressure as top member states have shown significant slowdown as respective PMIs from these regions were significantly downbeat. Nevertheless, the past week as shown Asian (Chinese, Indonesian, Japanese, South-Korean and Taiwanese) PMIs picking up steam majorly on the back of Chinese easing stimulus – should this continue to bolster growth we expect a transference of inflationary pressure to the euro area due to demand increment through increased trading activities. On the other side of the coin, the Fed’s uber-dovishness is not helping consolidate a bullish sentiment in the USDollar, thus setting the EUR/USD for a bullish rebound.

Technically, price is currently in a plausible inverse head and shoulder (H&S) print [see H1 Chart] – should this reversal pattern consolidate further, we should expect a surge to the upside at least on a near term basis. It’s also worthy of noting that confirmatory print(s) above the near-term resistance area (also in confluence with the neckline of the inverse H&S) would help validate our bullish bias hence we advise that we set up a buy order above this area.

 

Fig 1: Hourly (H1) EUR/USD Chart

 

EUR/USD

Buy order @ 1.12550 (pending order)

Stop: 1.12000

Limit: 1.13200

 

Conversely, there is still the significant sentiment around a slowing Euro area currently being priced in the market and keeps the EUR caped in a bearish zone. USDollar is currently in a range where a dovish Fed is currently keeping a leash on its bullish outlook. Nevertheless, there is significant growth and differential between the US and the RoW and that would always set the greenback up for “carry trading” irrespective of what the Fed’s monetary stance is. In summary, these put the EUR/USD favourably in a bearish zone, hence we advise that traders always use a stop loss.

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