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EUR/USD is looking for a new direction after recovering from the downfall. In the longer term, the common currency seems to have lots of room to rise.

Here is their view, courtesy of eFXdata:

Societe Generale Cross Asset Strategy Research notes that the USD  trade-weighted index (TWI) is at a critical juncture and discusses the related impact on the overall direction of EUR/USD.

“The Dollar is head and shoulders above the res  and the charts below come from that.  The dollar’s trade-weighted index is tracing out a head-and-shoulders formation  for the pleasure of chart-lovers,” SocGen notes.

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(Source: Societe Generale Cross Asset Strategy Research)

If the right shoulder is completed and the dollar falls back, it’ll look very bearish,  but of the pattern breaks and the dollar goes up from here, it will be set to reach new cycle highsand extend the rally that started in 2011. If that happens, the reason for it is likely to be weakness in other currencies rather than home-grown dollar strength, but that was the case in the previous cycle which saw the dollar rise from 1995 to 2002,” SocGen adds.

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Source: (Societe Generale Cross Asset Strategy Research)

“The Euro is much stronger on a trade-weighted basis than EUR/USD suggests. That isn’t enough yet to alter a view that  EUR/USD is having a huge wobble on its way to 1.30, but it’ll keep us looking at that head and shoulders pattern,” SocGen argues.

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