July 14 2021
We spoke on Monday about interest rate divergence, where I wrote it was time to sell EURNZD ahead of the RBNZ. The ECB President Christine Lagarde is making it quite clear that there will be no tapering and no tightening for the foreseeable future. This is a signal to sell the EUR. however, you need to be selective on what you sell it against.
After breaking 1.6940 on the hawkish RBNZ, the EUR is finally finding some support at 1.6780/60. While this area of support holds firm, you could see a corrective move back to 1.6860 or even 1.6900 in extension.
However, as the RBNZ was more hawkish than most expected I think a break of 1.6760 will see a further EUR losses to 1.6700/1.6680 or even a drop to 1.6620.
A lot will depend on tonight’s testimony by Jerome Powell. In my view I think he needs to face up to the fact that the FOMC should be worried about rising US Inflation.
If Powell signals some concern and moves away from his inflation is just transitory stance, then I think the USD could push the EUR to 1.1700. If he shows no concern and can convince the market all is under control, I think we could grind back to 1.1880 again!
The more aggressive EURUSD bears amongst us will probably like to sell at 1.1800, while more cautious traders will wait for a test of resistance at 1.1820/40.
Support is at 1.1780/60 at the moment, however a break would open up a test of 1.1720/1.1700 which is the bottom end of an 8 month trading range, where I would expect a fair amount of profit taking to provide support initially.
Will lightning strike twice in one day? Having broken support at 1.4780, traders are positioning for a hawkish twist from the Bank of Canada tonight. They are hoping for the same sort of reaction in the market as we saw from the RBNZ and NZD
The next area of EURCAD support is found at 1.4680/60, a break here would target 1.4600/1.4580.
Resistance is now going to found at the old support line at 1.4780 and then 1.4840.
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