Recently, the Euro-Dollar has hit values that we didn’t see from January 2015. The pair breakup the 1,20 on 6 September and the day after it reached an high at 1,2095.
The week US dollar and the super Euro have become a factor of nervousness for many actors. Especially in the European Union, where the recovery of peripheral countries is still very week. A stronger Euro is a source of worries for many European companies. The appreciation of the Euro will damage the export of those companies which have a weak international position. It means that the economic recovery will slow down again in some countries. Even ECB’s number one Mario Draghi has expressed concern over a stronger Euro. He remarked that a value of 1,20 is still sustainable but a further appreciation will damage his plans.
It was less then a year ago when many analysts announced the parity between the Euro and the US Dollar. And on December 2016 the exchange rate arrived quite near this level: it touched a low at 1,03522 on December 20 and then a new low at 1,03403 on January 3. But the parity became an illusion when in March the pair inverted the direction. We are now within an upward channel and the bullish trend doesn’t give any signs of weakness.
Why the US Dollar is getting weak and the Euro is getting strong
There are two main reasons on why the exchange rate changes its course. First of all, the monetary policies of the ECB and the FED aren’t too divergent anymore. One year ago the expectations were quite different: the FED should have been rise the interest rates quite fast due to the US recovery while the ECB would have keep the quantitative easing programme for some time. The European Union was also seen quite unstable due to the populist movements that threatened the union.
However in a few months the picture has changed. Good economic data begin to arrive and the recovery in Europe seems more convincing. At the same time, the populist parties have been beaten one by one in their respective countries. The turning point was in May, when Emmanuel Macron won the presidential elections, pulling away the spectre of Marine Le Pen. It was then when the Euro accelerated upward. The rise of oil’s prices also gave an hand to Mario Draghi to stimulate the inflation within the Eurozone.
With the populists in a corner, the economic recovery in action and the inflation near the target level, the European Union looks now more stable. At the opposite, there is some uncertainty in the United States, despite the economic rebound. It’s becoming evident that it will not be easy for the President Trump to make the fiscal reforms that he promised during the campaign. It will be difficult with such administration to translate words in action. Since Trump took office at the White House at least 10 top-level people have been fired or resigned.
What the technical analysis can tell us
The Euro-US Dollar has completed a pullback on the 2012’s low. The pair has broke the horizontal channel and it is now approaching the trend line drawn from the highs of 2008, 2011 and 2014. So, we can expect in the short term a further appreciation of the Euro. The change Euro-US Dollar will continue to rise in case of breakup. In this scenario the change could rise in the range 1,30-1,40.
We can see the bullish trend clearly on the daily chart. The change is in this upward channel since April 2017 and as long as it stays in this channel we can’t expect a trend change.
In short, from a technical point of view, the Euro should continue to appreciate in the short term against the US Dollar. Soon we can expect a throwback on the breakup of the horizontal channel. However, the change will fill the April’s gap only after the breakdown of the upward channel.