EUR/USD: Bullish Breakout, What’s Next?

 | Jun 28, 2017 06:55AM ET

They still exist, the huge price breakouts in spite of low volatility amidst a low-liquidity market environment. While we have almost forgotten how sustained breakouts look like, yesterday’s huge price movements reminded us that everything is possible, regardless of the market’s current bias. The FX market seemed to be recovering somewhat from the summer doldrums with the euro enjoying its strongest daily advance in more than a year. While the EUR/USD was the best performing currency pair Tuesday, the GBP/USD rose in tandem with the bullish price development and broke above 1.28.

The euro’s rise started after European Central Bank President Mario Draghi offered upbeat remarks on monetary policy, suggesting that the ECB could soon move away from their accommodative policy. Draghi’s message was interpreted as a beginning to implement the ECB’s exit strategy.

In addition, the U.S. dollar weakened sharply against its major peers after the International Monetary Fund (IMF) cut its outlook for the U.S. economy because of policy uncertainty. The IMF cut its 2017 growth forecast to 2.1 percent from 2.3 percent while the 2018 outlook was cut to 2.1 from the previous 2.5 percent projection. Fed chair Janet Yellen added fuel to the fire by suggesting U.S. asset valuations were ‘somewhat rich’. Consequently, the greenback suffered further losses and sent its counterparts higher in return.

Now, let’s take a look at the technical picture in order to assess the likelihood of further upward momentum.

EUR/USD
The pair broke above the upper barrier of its recent sideways trend channel and while there is a risk of imminent pullbacks towards 1.13, we generally expect further gains towards 1.1450 and 1.1530. The primary uptrend is still intact and with the euro remaining above 1.13 we see chances of a rise towards 1.1530, the upper barrier of the current bullish trend channel. On the downside, we expect a current support to be at 1.12, provided that the euro falls back below 1.1280.