Market Analysis

KOL Jay Tun: EURUSD – What’s Next?

Big Picture

After breaking the long term downtrend channel in late May, EURUSD gained a whopping 950pips (8.48%) to reach a high of 1.1916 on 6th Aug. At the time of writing (15th Aug), EURUSD is still range-bounded between 1.1710 to 1.1900.

 

The last time EURUSD ranged, long positions were further accumulated around the 1.1300 zone. What follows is another 500pips rally hence the bulls are definitely raging in this instance. Betting against this bullish trend would be dangerous for any traders.

 

The immediate key levels concerned is the top & bottom of the range (1.17 to 1.19). Beyond that, we are looking at 1.1630 as support & 1.2050 as resistance.

 

 

 

The Fate Of The Dollar

The broad US Dollar Index is currently fluctuating near the mid-point of its trading range formed since 27 July. This broad trading range is approximately defined by the 92.50 and 93.90 price levels, which will look to serve as technical barriers with potential of keeping USD price action relatively contained moving forward.

 

Having fallen from the height of 103 since late Mar, USD has been weakening and the next level to watch for is around 91.50 and then 90 zone. Should USD weaken further, we can expect the EURUSD to rally beyond 1.20 and that is a level not seen since 2018. Currently I am not expecting USD to turn its tide around.

 

 

Fundamentally Speaking…

 

Further weakness in the USD is no doubt helping EURUSD to advance to the area of range highs. The July/August rally is largely triggered by broad-based dollar selling and improved sentiments further supporting the view of a strong economic recovery following the coronavirus pandemic.

 

Also, the momentum around Euro is largely riding on the clinched deal on the European Recovery Fund. This definitely helped to put political fears within the bloc to rest for the time being. Another reason for the strength of the Euro is the better than expected results from domestic fundamentals and the solid position of the current account in the region.

 

The suspension of talks for COVID-19 stimulus measures in the US held investors from placing any aggressive USD bullish bets and helped limit any meaningful slide for the major. The Senate will not return this month unless negotiators strike an agreement.

 

 

Technically Speaking…

Currently EURUSD is facing price-to-oscillator divergence across my 3 favourite price oscillators. With that said I am not saying it’s an immediate short because of the divergence.

 

Here is what might happen technically…

 

  • EURUSD goes range bound like it did before. If it doesn’t break below 1.170 zone, the bias remains long.
  • EURUSD defies overbought situation on the oscillator and creeps up to the upside target of 1.20 zone.
  • EURUSD breaks below 1.170 zone, this confirms the bearish price action following the divergence.

 

 

Conclusion

 

Right now, I am not a fan of shorting this favourite pair that has decimated many retail traders and taken many by surprise. That rally of 900+ pips took so many traders by surprise and few were quick to turn around.

 

This is not a beast to be messed with and it’s usually not a good idea to short a raging bull. A better choice would be to wait out for the price to breach the key levels I have mentioned throughout this article, and then take the corresponding action following that.

 

If you have questions regarding this pair, reach out to me at [email protected] .


Jay Tun

Swim Trading.com