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Euro Breaks Higher; Friday’s Inflation will Test Currency Pair

David Becker
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Euro Breaks Higher; Friday’s Inflation will Test Currency Pair

The Euro broke out of downward sloping trend line resistance on Wednesday and continues to experience upward momentum on Thursday. Friday’s inflation release will give investors an idea of how much pressure will be placed on the ECB to loosen rates if a deflationary spiral has taken hold.

The Euro began to move higher on Wednesday after the Federal Reserve released its FOMC meeting minutes which showed that the central bank was far away from tightening rates, a far cry from what was expected. Yellen’s comments post her first press conference led investors to believe that the central bank was considering a rate hike imminently following the end of the bond purchase program but this does not seem to be the case.

With rate hikes pushed out, short term interest rates in the US declined, allowing the interest rate differential between the US and Germany to edge lower, pushing the forward curve in Germany’s favor and allowing the currency pair to move higher. A stronger than expected inflation figure, which is scheduled to be released tomorrow in the EU, could drive the currency pair above horizontal trend line resistance near 1.3967. Support on the currency pair is seen near the 10-day moving average near 1.3776.


Momentum on the currency pair has turned positive, as the MACD (moving average convergence divergence) index has generated a buy signal. This occurs when the spread (the 12-day moving average minus the 26-day moving average) crosses above the 9-day moving average of the spread. The index moved from negative to positive territory confirming the buy signal. The RSI (relative strength index) which is an oscillator that measures momentum, moved higher with price action reflecting accelerating positive momentum, while printing near 59, which is on the upper end of the neutral range.

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