Euro Breaks Above 1.11; What's Next?

 | May 17, 2017 06:50AM ET

A slight glimmer of hope emerged for day traders in the Forex market after the euro surged by more than 1 percent amidst very quiet market times. The euro broke through short-term technical barriers and opened the door for a break of 1.11. While traders that have been trading the EUR/USD were able to gain a good profit by buying euros towards 1.1070, the focus now shifts towards a sustained rally in the euro with potential higher targets at 1.1140, 1.1220 and 1.13. Before we come to the technical outlook, we will briefly address the reasons for the strong rise in the currency pair EUR/USD.

On the one hand, the euro was supported by easing political concerns in the Eurozone in the aftermath of Macron's victory as well as by stronger-than-expected Eurozone data. Moreover, there is speculation that the European Central Bank is on course to alter its monetary policy and may reduce its asset purchases over the coming months (key word: Tapering). Governing Council member Jan Smets warned in an interview the ECB 'will not wait until New Year's Eve to tell the markets what will happen on the first of January'. With that said, the ECB may show a greater willingness to move away from the easing cycle. On the other hand, investors refrained from buying U.S. dollars amidst growing concerns over political affairs of the Trump administration. The greenback was hence not an attractive investment.

EUR/USD
The euro is rising but what's next? We outlined a potential uptrend channel towards which short-term price action might be oriented to. Based on that channel a next higher target could be at around 1.1140, whereas a current support could be seen at around 1.0920. However, if the euro climbs above 1.1150/60, the currency pair may extend gains towards 1.1220/40 and 1.13. Nonetheless, we bear in mind that the pair approaches overbought territory, making it vulnerable to pullbacks at these high levels.