Strategy
Buy EUR/USD at 1.1360 for 1.1750 with a stop 1.1050 on a 4 months outlook.
Technical View
Price has broken above the cloud and both Conversion and Base lines had a bullish crossover and this could herald a new bullish trend for this pair. After the crossover over the cloud, there was a week, where price tested the cloud support, which held well and this has resulted in price moving higher above the cloud. This week, we are seeing a strong reaction in price’s upward movement, as seen by the strong and bigger candle. If price were to close this week above 1.1425, it is likely to accelerate the upward movement towards 1.1750. The breakout of a V-shaped structure is a confirmation of the uptrend. It also gives us a price target of 1.1665. There is also a strong previous price high resistance at 1.1750. We think price is likely to move towards this target zone.
Fundamental View
The Federal Reserves started a quantitative easing program to bring down interest rate in order to aid the market in its recovery from the coronavirus pandemic. QE is likely to erode the value of the U.S. dollar. The Trump administration has also implemented fiscal measures to help U.S. companies and its citizens cope with the pandemic. The coronavirus rescue bailout amounts to U.S$2 trillion. This is likely to swell the U.S. deficit and erode the U.S. dollar. While the Eurozone has also enacted monetary and fiscal measures, its quantum is not as large as the U.S.
The U.S. dollar has over the past few years hold a strong position against the Euro dollar with its high interest rate. However that interest rate differential has narrowed after the Federal Reserve lower interest rate to almost zero. As a result, the U.S. dollar is likely to weaken against the Euro.
We believe the US administration mishandled the coronavirus pandemic response. This mishandling has resulted in coronavirus cases increasing in many states in the U.S. Many US states are rolling back on re-opening of their economies as a result. On the other hand, Europe appears to have a better handle on containing the coronavirus outbreak than the U.S. does, setting it up for a faster recovery. The spread of the virus across major European countries is more contained even after recent lockdown measures were lifted, while in the U.S., some states are rolling back reopening measures. Germany, France and Italy have all taken severe lockdown steps and as a result the coronavirus and now appears to be under control. The economy could be gradually recovering.