Further Easing measures from Fed and FED's downward forecasts and unusually uncertain view at the expense of prolonged downside in bond yields and USD SHALL send this currency retesting 1.3333 and reaching further North this upcoming week.
one of the main drivers of USD weakness since the beginning of June has been a widening in interest rate spreads against the USD relative to other major currencies, especially in EUR/USD. EUR rates increased as markets priced-in the withdrawal of ECB long-term lending facilities and convulsed through the European sovereign debt crisis. US short-term rates also moved modestly lower as incoming data painted a weak outlook.
Those spreads have stopped widening (from about -2 bps at the end of May to a peak at -50 bps at the end of July; last at -44.5 bps) and there is reason to believe they may begin to narrow in the weeks ahead, potentially signaling a medium-term top for EURUSD.
Technical Analysis
H4 E/U Chart
Daily E/U Chart
On the H4, Resistance 2 (1.3363 ) is a critical Resistance level. The present bullish-biased trend shall send it towards next resistance 1.3511 which will be the 50% Fibo Retr.
On the Daily Chart, we do note that the next resistance is 1.3428, breaking it may expose the 1.3511. But please do note that negative divergence are observed on both the MACD and Slow Stochastic (10,3,3), We must monitor closely the presence of any divergence , if any, on both the Fast Stochastic and RSI near term.
In short, the northern Journey for Euro/Usd may continue towards 1.3500 region but please watch out for pull back near 1.3400--1.3600.
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