- The EUR moved higher in Asia with risk assets on US-China trade optimism.
- The downward sloping 5-week MA is capping gains.
- Implied volatility has hit the lowest level since November 32017, so a big move could happen soon.
The EUR/USD pair is currently trading at 1.1340, having hit a high of 1.1349 in Asia, courtesy of US-China trade optimism.
On Sunday, Trump offered a clear hint of a breakthrough US-China trade deal via Twitter. The risk assets, therefore, picked up a bid in Asia and the US dollar, a preferred safe haven during the height of the trade war, ran into offers.
Even so, EUR/USD failed to cut through the 5-week MA, currently placed at 1.1348. That average could be scaled in Europe if German bond yields rise on trade optimism. The bulls, however, need a break above 1.1370, as discussed earlier today. That would signal a continuation of the recovery rally from the recent low of 1.1234.
Stuck in a $1.12-$1.15 range
EUR/USD has been largely restricted to a narrow range of $1.12-$1.15 since October. Amid the lack of clear direction, the one-month at the money implied volatility has dropped to 6.02 percent – the lowest level since November 2017. The volatility gauge stood at 7.95 in mid-November.
A low volatility period often ends up paving the way for a big move. As a result, EUR/USD could soon see a convincing break of the 1.12-1.15 trading range.
The upper edge could be breached if the US and China sign a trade deal ending the year-long period of uncertainty. That would alleviate the fears of the German recession, forcing markets to pencil in an ECB rate hike.
Technical Levels
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