EUR/USD closed at the highest level since Nov 11, what’s next?

EUR/USD closed at 1.0820 on Tuesday; its highest daily close since November 11. On the daily chart, it marks a bullish inverted head and shoulder breakout. So the obvious question faced by traders is what’s next?

Techies suggest potential for a rally to 1.1239

As per the measured height method, the doors have been opened for a rally to 1.1239 following the inverse head and shoulder breakout. However, the bullish technicals need to be supported by macros/fundamentals, which in the long-run continue to favor the US dollar.

Fed is still on track to raise rates at least twice this year. Many policy makers see a potential for four rate hikes in 2017. The chatter is also that Fed may deliver a quasi rate hike at the yearend i.e. reduction in the balance sheet size. Meanwhile, we still have to go through French and German elections. The Greek debt crisis continues as well.

Hence, the odds of a quick rally to 1.1239 are low. Nevertheless, an inverted head and shoulder breakout means the larger downtrend from the high of 1.1616 (May 2016 high) has ended and only a sudden and sharp rise in the Fed June rate hike bets and/or widening of the Franco-German yield spread could trigger a fresh sell-off in the EUR/USD.

EUR/USD Technical Levels

The spot was last seen trading around 1.0790 (inverse head and shoulder neckline support). A break below 1.0790 would open doors for 1.0719 (previous day’s low), under which the losses could be extended to 1.0679 (Feb 16 high). On the other hand, a breach of resistance at 1.0851 (Oct 25 low) would expose 1.0911 (June 24 low) and 1.0952 (July 25 low).