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Euro Started Medium Term Up Trend With Break of Key Resistance Against Dollar

Euro ended as the strongest one last week as boosted by the agreement on the Next Generation EU recovery fund. It’s seen as a landmark deal which would increase cohesion of the EU. The burden on ECB would also be dramatically eased with the fiscal support. Meanwhile, Eurozone PMI composite jumped to a 25-month high in July, hinting at an initial V-shaped recovery. The strength in Euro took Swiss Franc and Sterling higher today, with the latter supported by PMI composite at 61-month high.

On the other hand, Dollar ended as the weakest as rebound in initial jobless claims raised concerns of a double dip recession. That came in with the background that US and global daily coronavirus cases hit new records. Yen might look weak in the weekly heat map but it has actually regained much ground towards the end of the week on risk aversion. US Secretary of State Mike Pompeo’s speech, titled “Communist China and the Free World’s Future“, was seen as sealing the turning point of multi-decade long US-China relations. Stock indices in Hong Kong and China were in steep decline since then, dragging down commodity currencies too.

Technically developments suggest that Euro’s upside momentum will continue for the near term at least. There are prospects of more downside in commodity currencies, in particular against Euro and Yen. There is no clear sign of bottoming Dollar for now. But a long-overdue correction could help the greenback for rebound, at least against commodity currencies.

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Dollar heading back to 88.25 if 93.88 couldn’t be defended

The biggest technical development last week was EUR/USD’s strong break of 1.1496 structural resistance, which confirms medium term bullish reversal. Correspondingly, Dollar index took out 94.65 support as anticipated support didn’t happen. Fall from 102.99 is seen as the third leg of the pattern from 103.82. Outlook will remain bearish as long as 97.78 resistance holds in any case. Next line of defense is 61.8% retracement of 88.25 to 102.99 at 93.88. Sustained break there will pave the way to 88.25 low.

EUR/CAD heading to 1.5591 resistance and above

Euro’s strength was clear against Canadian Dollar too. The rebound from 1.5052 accelerated to as high as 1.5643 last week. The development clearly suggests that pull back from 1.5991 has completed. Near term outlook will stay bullish as long as 1.5377 support holds. Current rise should target 1.5991 and above. Nevertheless, long term resistance at 1.6151 would be the real challenge for the cross.