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The Euro is Poised to Test Higher Levels in February


January 21, 2020 ( Newswire) The Euro is poised to test higher levels as the yield differential between the US 10-year yield and the German 10-year yield begin to rebound after hitting 12-month lows. The decline in the yield differential led to a dollar rally, which is now in the process of reversing as the yield differential moves in favor of Germany. The technicals in fx trading paint a mixed picture, as the exchange rate is poised to test resistance during February. There is very little seasonality to EUR/USD returns in February as the positive and negative returns is offset during this period with an average return of 0.01%.

Support and Resistance

The exchange rate is in the process of a short term rebound after hitting support near the 50-day moving average near 1.0918. The exchange rate has been trading between 1.09 and 1.15 for the past 12-months and is moving back to the mid-point of the range which is a downward sloping trend line that comes in near 1.12. Prices are chopping sideways. A break of the downward sloping trend line at 1.12 would lead to a test of the July 2019 highs at 1.1290, and then a test of the June 2019 highs at 1.1410.

Daily Momentum is Positive to Neutral

Short term momentum on the EUR/USD is positive as the short-term stochastic generated a crossover buy signal. This occurred at the bottom of the neutral range but above the oversold trigger level of 20. In each of the recent crossover buy signals generated by the fast stochastic showed short-term follow through to the upside. The RSI (relative strength index) is moving higher in tandem with price action showing that short-term momentum is on the rise.

Medium term momentum is beginning to rise as prices consolidate. The MACD (moving average convergence divergence) index is moving toward generating a crossover buy signal. This occurs as the MACD line (the 12-day moving average minus the 26-day moving average) crosses above the MACD signal line (the 9-day moving average of the MACD line). The MACD histogram is also climbing and rising toward the zero-index level which would also generate a crossover buy signal.

Weekly Momentum is Mixed

Weekly price action on the EUR/USD exchange rate is as subdued, and points to further consolidation in February. The weekly fast stochastic generated a crossover sell signal near the overbought trigger level and is now printing a reading of 70. This likely means that the exchange rate will be capped, potentially moving toward resistance near the 50-week moving average near 1.1166.

Long term weekly momentum has turned positive as the weekly MACD index generated a crossover buy signal. This occurs as the MACD line (the 12-week moving average minus the 26-week moving average) crosses above the MACD signal line (the 9-week moving average of the MACD line). The MACD histogram is also climbing and rising and moving away from the zero-index level which points to potentially a higher exchange rate.

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