EURUSD: 1.0341 lows look increasingly likely to have marked a bottom - TDS

According to the analysts at TDS, with the first round of French elections getting over, the political event risk is likely to dissipate and the 1.0341 lows set in early January look increasingly likely to have marked a bottom for the common currency.

Key Quotes

“This puts the ECB firmly in the driver seat and here we expect the central bank to announce taper before the end of the year as the macro underpinnings look constructive in our view. We have been strategically neutral since EURUSD made a first punch above 1.0820/30 and we think investors—with an eye towards the longer horizon—should view an accumulate-on-dips stance as appropriate. 1.0865 offers the first line of support with greater support for this stance occurring towards 1.07 (see chart on overleaf).”

“We acknowledge however that Draghi will delicately nuance an eventual ECB shift towards taper and that, along with stubbornly low core inflation and a mixed balance of payments backdrop, could prevent EURUSD from achieving escape velocity. However, we acknowledge the risk of our 1.12 forecast for the second half of the year occurring sooner, especially as Trump-led reflation policies appear unlikely to obtain credible consideration with Congress through much of this year.”

“From a technical perspective, EURUSD has some bullish underpinnings and has so far evolved within an upward trending trend channel from the Dec-Jan lows. The 1.0900/50 area is a key zone which coincides with the June 24, 2016 post-Brexit lows but we rather think that the figure above will be tested in the coming days.”

“Indeed, we think 1.1028 marks crucial resistance to the topside; this is the 50% Fibo-retracement level from the August 2015 highs and January 2017 lows. Importantly, this level also may also signal a more significant inflection point that would mark a more formal exit from trend resistance from the 2016 highs. Above this, we look towards 1.1190/1.1200.”