Upbeat Inflation Data Keeps Euro Bullish

Upbeat Inflation Data Keeps Euro Bullish

 
In our analysis report published on May 15th, we had informed our interest to take a long position in the EURUSD pair near 1.0900, with a target of 1.1040 or higher. Additionally, we had expressed our intention to invest in a call option to gain from the rise of the EURUSD pair. As forecasted, the Euro broke past the resistance to reach a high of about 1.1260 in a week. That resulted in a profit from both the trades. Now, the pair has been consolidating between 1.1180 and 1.1280 for the past one month. We expect an upside breakout in the Euro, in the days to come.

The improving Euro zone economic data have considerably increased the pressure on the ECB to normalise its monetary policy. Many economists have started questioning the need for continuing the €60 billion asset purchase program when there are firm signs of inflationary pressure. The victory of Emmanuel Macron in the French election has also strengthened the stance of pro-EU campaigners. Furthermore, the Italian trade surplus data announced on Friday has only added to the strength of the Euro.

According to Istat, the trade surplus in April was €3.60 billion, compared with €5.31 billion in the previous month, but greater than analysts expectation of €3.41 billion. In the Euro zone, according to the data published by Eurostat on Friday, the final consumer price index increased 1.4% y-o-y in May, and in line with analysis estimates.

The situation is exactly opposite in the US, where the economists are questioning the timing of Fed hike. The recent economic data indicate considerable softness in inflationary pressure. Even the construction sector is experiencing slow down as evident from the data reported by the Census Bureau on Friday.

The number of new housing permits in the US declined to an eight month low of 1.17 million in May, from 1.23 million in April. The market was expecting housing permits of 1.25 million in the latest report. Thus, weak economic data and dovish rate hike keep the US dollar bearish against the Euro, which rises on improvement in the economic situation.

Technically, the stochastic oscillator is moving out of the bearish zone. An increase in buying pressure is also confirmed by the rising momentum indicator. Thus, we can expect the pair to break out through the upper band of the trading range.

EURUSD - Technical Analysis - 19th June 2017

To earn from the breakout, we wish to take a long position in the EURUSD pair near 1.1180, with a strict stop loss order under 1.1080. If the breakout happens as anticipated, we would exit our long position near 1.1450.

We prefer a call option to trade the probable uptrend. Additionally, we would opt for a contract expiry date between June 26th and June 28th. Since a single pip can decide the outcome of a binary option trade, we would enter only when the pair trades near 1.1180.

Disclaimer: The trading analysis offered here is our opinion. It is not provided as trading advice, merely an indication of our trading plan. We cannot guarantee success and we encourage traders to incorporate a strong money management strategy to limit losses. Please use this article as part of your own research before formulating strategies prior to trading.


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