EURUSD spikes to 1.2000 and drops sharply afterwards – re-test of 1.1700 ahead?

September 04, 2020 11:30

Source: Economic Events September 04, 2020 - Admiral Markets' Forex Calendar

On Tuesday, EURUSD spiked to the psychologically relevant mark of 1.2000, trading at its highest levels since May 2018.

But instead of taking on further momentum, the Euro saw heavier selling afterwards which accelerated after ECB chief economist Lane said later that day that the […]ECB doesn't target the FX rate, but that the Euro-Dollar rate matters[…]

While the timing of this rhetoric, coming after the short spike to 1.2000 the same day, may have been a coincidence, market participants may have wondered how strong the ECB will let the Euro become before rhetorically intervening, especially against the US-Dollar. It is kind of 'special' in the current market environment.

"Special" because of the potential extreme sentiment which can be seen in the quite extreme net long position in the Commitment of Traders Report among large speculators, which could result in a sharper bounce short-term.

While we consider the mode neutral as long as EURUSD trades above 1.1700, here are a few key points to consider

  • At least a test of the region around 1.1700 in the days to come seems likely
  • Testing 1.1700 seems especially likely if today's Non-Farm Payrolls continue to print similarly strong as in the months since the corona lockdown in March/April if US unemployment rates continue to drop
  • Technically, further pressure on the downside could result out of the bearish divergence on D1 in the RSI(14).

Still, holding above 1.1700 in addition to the FED's "average inflation targeting" paints a bullish picture for EURUSD and we expect in the upcoming 6 to 12 months a deeper run above 1.2000:

Source: Admiral Markets MT5 with MT5SE Add-on EURUSD Daily chart (between May 27, 2019, to September 03, 2020). Accessed: September 03, 2020, at 10:00 PM GMT - Please note: Past performance is not a reliable indicator of future results, or future performance.

In 2015, the value of the EUR/USD fell by 10.2%. In 2016, it fell by 3.2%. In 2017, it increased by 13.92%. In 2018, it dropped 4.4% and in 2019, it fell by 2.2%, meaning that after five years, it was down by 7.3%.

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