Technical View
Price has been on a decline since the beginning of 2019 but over the past eight days, price seems to have made a bottom around the 1.0925 support. In a space of eight trading days, prices touched a low of 1.0925 twice and have rebounded up strongly. On the second attempt at the low, it was on the back of an ECB rate cut. Price touched 1.0926 and had bounded up strongly to close the day at 1.1057.
Looking at the trend channel, the two occasions when price touched the low, it was near to the bottom of the trend channel as highlighted by the thick blue line. Price is above the 20EMA and Stochastic is rising, hinting of further price advancement. MACD is rising but currently MACD is still bearish with both its lines below the zero line. If price has met its low at 1.0925, price is now likely to move to the opposite side of the trend channel at 1.1300.
Fundamental View
Last Thursday, the European Central Bank cut its deposit rate to a record low of -0.5% and said it will restart bond purchases of up to 20 billion Euros a month until the central bank was ready to raise interest rate. The single currency fell to a low of 1.0925. It was the second time price visited this price level. But price ended the day higher at 1.1057. Despite a cut in interest rate, price has rebounded higher. German government bond yields surged as well, with investors believing the ECB was done stimulating the ailing Euro zone economy. Another reason for the single currency rally was the central bank decision to exempt Euro banks from a penalty charge on their idle cash, which analysts said will reduce the currency impact of the new stimulus. By exempting banks from the penalty charge, the ECB aims to minimize stress in financial institutions that have been harmed by years of low rates. And it could be a long time before ECB raises rate and end its bond purchases program.
The US central bank is expected to cut interest rate at its meeting this Wednesday. Currently the interest rate differential is 2.75%. If the Fed cuts rate on Wednesday, that differential would be reduced to 2.5%. This would benefit the single currency. There is still an interest rate differential advantage to the US dollar, but that advantage had been priced in before and a reduction in the differential would be a benefit to the single currency.
Strategy
We think the EUR/USD may have found a bottom at 1.0925. As long as price does not fall below this support, we think the single currency can go higher to 1.1300 in the next 6 months.