Euro Long term Forecast - Jul'17

Jul, 08, 2017     By Vikram Murarka    0 comments


8-July-17 / Euro 1.1392

EXECUTIVE SUMMARY:

In our Jun’17 report, we expected the resistance cluster of 1.1300-1.1450 to hold and either 1.1285 or 1.1400 (in the best case scenario) to be a major top to be followed by a major correction.

The outer limit of our resistance band at 1.1450 has been tested and is holding so far. As such, we maintain our view of a medium-term top being formation near 1.1450 and Euro weakening towards 1.12-10 over the next few months. On the other hand, the alternative scenario of an immediate break above 1.1450 and a long term bullish reversal of the major bear market since 2008 gains currency due to rising German-US yields spread. Possibly, the Euro will choose its path for this quarter in the next 1-2 weeks by either breaking above or staying below 1.1450-1500. Our bias is neutral at the immediate juncture.

 

 EURUSD Weekly Candles Jul17 Chart

The chart above shows Euro Resistance at 1.1450 on red channel trendline which has capped the upside for the last 2 years. So far, this Resistance is holding even on the third testing, supporting our previous view of a medium-term top at 1.1450. At the same time, we allow for a false spike into the 1.15-16 region.

 

Euro & German-US yield spread:

EURUSD vs 10yr and 2yr Bund TBond dif

The G10-US10Yr Spread (-1.81%, RHS on chart above) has broken above the long term trendline resistance as shown on the chart above while the G2-US2Yr Spread (-2.01%, RHS on the chart above) is yet to its face long term resistance. The breakout of the 10Yr strengthens the possibility of Euro rising above 1.15-1.16 but we still need an actual price confirmation from Euro.

 

Euro Fractal revisited: Can Euro embark on a bull market in 2017 itself?

EURUSD Monthly Candles Chart

This chart was last discussed in the May’17 report though we have been tracking this Fractal since May’16. There is startling similarity in the price action between the periods of 1985-2002 and 2002-2016. Based on this, and the rally from 1.0339 to 1.1427 seen so far in 2017,  there is a chance that in case a successful break above the May ’16 top of 1.1620 is seen, the Euro will register a higher high, the initial signal for a new bull market.

 

Quarterly Projections

EURUSD Quarterly Projections Jul17 Chart

 
Conclusion

Euro is testing a crucial resistance at 1.1400-1.1600. If this holds, the Euro may retreat towards 1.10 in the coming months. On the other hand, a weekly close above 1.16 may signal a long term reversal and may open much higher levels near 1.20. We have to see which path the currency chooses in July.

Vikram Murarka

Chief Currency Strategist at KSHITIJ.COM. Likes to look at the markets from many different angles. Weaves many conventional and unconventional technical analysis techniques and fundamental analysis into a global macro perspective. Likes to take the road less traveled.



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