EUR/USD Analysis: Rebound Cut Short, Volatility Limited

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The EUR/USD currency pair remained in a tight sideways movement over the last two days despite the Euro’s attempt to rebound against the greenback on Thursday. Trade wars have been playing a significant role on the greenback in recent weeks and coupled with an indifferent economic data from the EU, this provided the Euro with a boost that saw the pair trend upwards since the start of the month.

However, since the start of the week, things have been heading southwards as expectations on an ECB rate hike continue to cool. Investors were optimistic coming into this month that the European Central Bank would hike the interest rate, but recent comments seem to suggest otherwise.

On the other hand, despite the ongoing trade wars between the U.S. and China, as well as, some geopolitical tensions between the North American country and North Korea, the greenback seems to gain a lot of support from U.S.A.’s strong economic outlook.

The federal reserve is expected to hike rates, at least, on two more occasions this year while the inflations rate appears to have stabilized at the targeted 2%. And while recent non-farm payrolls and jobs data have triggered mixed opinions about the stability of the U.S. economy, the general outlook appears to be convincing enough to retain investor optimism.

From a technical perspective, the EUR/USD currency pair has been trading within a 300-pip range since the end of May and this looks like it will continue for the next few weeks, at least. This compares inferiorly to the period preceding it, during which, the pair dropped nearly 900 pips within a period of six weeks. As such, it is correct to say that the pair currently appears to be on a tight leash, and this provides interesting trading opportunities for investors.

The 4-hourly chart below paints a clear picture of how events unfolded over the last few months. So, what opportunities can traders target?

EURUSD h4 Chart July 13, 2018

Looking at the 4-hourly chart above, there are two key levels, which pretty much indicate the ceiling and the base that the EUR/USD currency pair has traded within over the last six weeks. These key levels also form the psychological resistance and support zones at about 1.1500 and 1.1800 for the pair, which explains why traders might be reluctant to push the pair outside of that channel for a while.

For short-term trading opportunities, bearish traders could be looking to target opportunities at (S1) around the 1.1600 level, which could result in about 70 pips worth of profits based on the current rate of about 1.1670. On the other hand, the bulls could target to take profits at (R1) around the 1.1720 level, resulting in about 50 pips worth of profits.

These trade opportunities may not appeal to all investors. Some, especially the ones that focus on long-term trading might prefer a wider view of events.

However, expanding that view to the daily chart as demonstrated below, creates more questions than answers. From a technical perspective, some traders could be looking for a major rebound that could supposedly rally the EUR/USD pair well above the 1.2400. This is potentially a fallacy given the current economic conditions of both regions.

EURUSD Daily Chart July 13, 2018

For instance, the chart above seems to suggest that the massive plunge in the EUR/USD that took place between April and May might have been a corrective retracement, which means chances of the pair rising back to those levels are limited.

In addition, when you look at the period before that, the pair had experienced a major rally, which incidentally occurred at a time when the U.S. equity markets were on a bull run. This further strengthens the argument about the April-May plunge being a market correction in the exchange rate of the pair.

As such, the more realistic opportunities for now appear to be limited within the resistance and support zones discussed earlier, as the EUR/USD volatility remains on a tight leash.

Nonetheless, traders could still look at forthcoming economic events, which could act as a springboard for a major movement, potentially outside of the current channel.

This Friday, Germany will be releasing Wholesale Price index for June, which is a minor report that could have limited impact on the EUR/USD pair. On the other hand, the U.S. will provide the July preliminary Michigan Consumer Sentiment Index, which economists expect to be at 98.2 basis points. The semi-annual Fed Monetary Policy Report will also be out, and this will be key to traders.

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