To receive new articles instantly Subscribe to updates.
Will Spring Rescue the Euro?
Written by: PaxForex analytics dept - Tuesday, 16 April 2019 0 comments
The global economy has cooled in the first-quarter of 2019 and there are plenty of factors which keep downside pressure on growth. Some analysts are now seeing economic green shoots as spring is blossoming. The biggest focus has been progress in trade talks between the US and China in order to end their trade war. The Eurozone economy has suffered significantly so far in 2019 which kept the Euro in refined to tightening trading ranges. Will the economic green shoots materialize or falter as summer approaches? Brexit remains in limbo and the threat of a US-EU trade war is not prized into markets.
Economic data out of the Eurozone has not been promising and overall clocked in below expectations. While Chinese data has started to rebound from its lows due to government stimulus, it remains to be seen if this will filter through the global supply chain. A rebound in China will benefit the Eurozone economy to a greater scale than the US economy which is why some traders are now zeroing in on the EURUSD. The options market has turned the most bullish on this currency pair since eleven months ago. The fears of a recession in Germany have not receded and the ECB remains extremely dovish and keeps stimulus in place.
While some trades are optimistic about a positive outcome in US-China trade talks, this would also free up resources for President Trump to engage into a trade war with the EU. This will counter any potential positive impacts of a trade deal reached between the US and China. Themos Fiotakis, the Head of Currency and Rates Strategy at UBS, remains a Euro bull and noted “Range trading can mask an underlying build-up of pressures that get released eventually. We acknowledge the ECB’s dovishness but are inclined to see growth, in Europe and globally, as the more forward-looking and bullish driver of the Euro.” The Eurozone faces a range of headwinds and growth expectations may be misplaced at this point.
Optimism for the EURUSD is rising at big banks. Morgan Stanley Strategists Hans Redeker joined UBS in their call to go long. He pointed out that “Optimism on growth in the rest of the world rebounding should weaken the dollar and help the Euro. We like buying Euro-Dollar this week.” Joining the duo is Nordea Bank as Chief Analyst Martin Enlund added “We have highlighted the green shoots globally for a while now and at some point, one must put the money where the mouth is. We go long Euro-Dollar, as we judge that an Asian rebound is better news for the Euro than the Dollar. Given the risks for the global economy and especially for the Eurozone, which will only increase if the US reaches a trade deal with China, this surge in bullish optimism may falter inside a bear trap. Will spring rescue the Euro? While the options market and big banks seem to believe it will, the risk remains to the downside. Here are three forex trades to push your portfolio to the upside!
While the EURUSD has been confined to bearish price channel which is expected to continue to apply bearish pressures on this currency pair. A resolution to the US-China trade war may be found over which would boost the US
Dollar short-term. Price action has now approached the upper descending resistance level of its bearish price channel and a secondary descending resistance level is further limiting upside potential in the short-term. The EURUSD is expected to move back down into the lower band of its horizontal support area from where a triple bottom may form. Forex traders are advised to sell any potential rallies into the secondary descending resistance level.
Given the extended period of Brexit uncertainty as well as political turmoil in the UK, the British Pound is expected to come under pressure. Euro bulls can find a long trading opportunity in the EURGBP. Price action completed a double breakout; above its horizontal support area as well as above its primary descending resistance level. The path is now clear for this currency pair to accelerate to the upside until it can challenge its next horizontal resistance level. Forex traders are recommended to buy any dips down into its primary descending resistance level which acts as short-term support.
As expectations for a positive outcome to the US-China trade war increase, one of the beneficiaries will be the South African Rand which depends on commodities and exports. The EURZAR has dropped from its horizontal resistance area and moved below its horizontal support level turning it into resistance. Price action also pushed below its primary horizontal resistance level and is currently trapped between both. A new push to the downside is anticipated to result in a breakdown below its secondary ascending support level. This would allow the EURZAR to extend its downtrend until it will reach the upper band of its horizontal support area. Selling rallies into its next horizontal resistance level remains the favored trading approach.