EUR/USD shoots towards 1.13 – 3 reasons

EUR/USD is trading at 1.1280,  extending the gains seen yesterday.  The pair hit a high of 1.1295 and the chart shows an accelerating move to the upside.

What’s behind the move? And where next? Here are thee reasons for the upside move, levels to watch in both directions and why this could be exaggerated.

Update:  Yellen surprises with hawkish talk – USD jumps

3 reasons

1. No rush from the ECB: Draghi  kicked off the euro-rally by basically not offering anything new. And now, the Lithuanian member said that they will only begin discussing more QE in December. No rush at all.  Vitas Vasiliauskas actually sees signs of improvement in the euro-zone and does not want to discuss something so hypothetical only 7 months into the program.
2. Mixed US data: While new home sales beat expectations, core durable goods orders actually missed, and this  means long term investment is subdue, a bad sign for the Fed.
3. Anticipation for  a dovish Yellen: And later we hear from the Fed Chair Janet Yellen. She was dovish in the Fed press conference, citing the weak dollar and China. In the meantime, China looks worse and she  is probably already getting what she wishes for: a weak US dollar.

And what’s next?

This could be an overshoot, as the pair is moving too fast. Tomorrow we have the final GDP read from the US. If it only meets expectations – a confirmation of the 3.7% rise, we  could get a clear reminder that the US economy is doing well and that the Fed is set to hike while the ECB still intends to add more QE.

And what if  Yellen doesn’t go all dovish?

In any case, on the upside we have 1.1373, which worked as support in 2003 and recently separated ranges. The double top of 1.1460 is very strong resistance.

More:  EUR/USD: Revising The Downside – Barclays

Here is how it looks on the chart:

 

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