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#1 01-12-2020 13:35:59

johnedward
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From: Paris - France
Registered: 21-12-2009
Posts: 3068
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EUR/USD: a range breakout is underway

EUR/USD: a range breakout is underway


The euro was close to intermediate resistance of $1.20 yesterday, in a market that is gradually turning towards next Tuesday's meeting of the ECB Governing Council. On Monday, UBS, in a research note, says it expects the PEPP (Emergency Pandemic Purchasing Programme) to be extended for 5 months and increased by 500 billion euros, from 1,350 billion euros to 1,850 billion euros. According to USB, the TLTRO (Targeted Longer-Term Refinancing Operations) would be extended until mid-2022. Verdict on 10 December to see to what extent UBS's expectations will be confirmed, and to what extent more generally the European Central Bank has the possibility to still surprise the market in its dovish (conciliatory, accommodating) attitude.

In the meantime, traders will try to gauge the ability of governments to implement an effective vaccine policy, after having digested the various exciting announcements in the phase III trials of Pfizer (with Biotech), Moderna and Astrazeneca (with Oxford University).

On the U.S. side, it is still the question of the new recovery plan that conditions a lot of things on the currency pair. CÚsar Ruiz, Head of Investments and CIO at Pictet Wealth Management believes that "US economic activity could lag behind European economic activity, both in the contraction phase and in the recovery phase. Therefore, a new US stimulus package would be more than welcome to maintain economic momentum until the vaccines are distributed".

"Nevertheless, the prospect of an imminent vaccine against the virus means that the prospect of a large-scale recovery plan is less and less likely, and this is something that the markets, which are particularly optimistic, should take into account," warns Perez, who also sees the appointment of former Fed President Janet Yellen as Secretary of the Treasury as "good news" in that it represents a consensual choice that will facilitate relations between the Biden administration and the Fed.

For the time being, the macroeconomy is rather reassuring, with the latest publications, particularly on industrial activity in China. On the European side, the IHS Markit manufacturing PMI came out in final data for November at 54.0, slightly above the target for the Eurozone as a whole. The Chicago PMI, released on Monday, however, disappointed by coming out below expectations at 58.1.

Right now, the EUR/USD is trading at $1.1976.

KEY CHART ELEMENTS

The $1.19 having dropped without too much resistance, the spot continues its ascent towards the next threshold, at $1.1200. A thin working band between $1.19 and $1.20 is emerging for the more active traders, who will be anticipating an exit from the top of this range. We will then emerge from a vast summer of congestion.

MEDIUM-TERM FORECAST

In view of the key chart factors we have mentioned, our opinion is positive in the medium term on the pair.

Our entry point is $1.1972. The target price for our bull scenario is $1.2154. To preserve the capital employed, we advise you to position a protective stop at $1.1899.

The expected return on this forex strategy is 182 pips and the risk of loss is 73 pips.

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