The Euro looks strong, could get even stronger
As the middle of the week approaches as well as some key data releases we are of the opinion that there is a very big likelihood that recent strength in the EUR/USD exchange rate is quite temporary. We are keen to explore opportunities to buy daily calls at levels slightly below current market prices. Namely we would be buying as soon as prices drop to 1.3775-80.
The main reason for this call is the ongoing dollar weakness across the board. It doesn't seem to stop with some light selling, and the Euro could ultimately be a beneficiary of the doubt. The doubt being what will the federal reserve open market committee meeting minutes will show. If anything, can it be some dollar positive news - well highly unlikely.
The main problem for the trend has been the ongoing speculation that the ECB might start its long debated and awaited unconventional measures. However could that be really substantial - highly unlikely. Hence let's have a look at the current hourly charts that we have drawn on the chart attached above.
Firstly we see some substantial offers just above the 1.38 area - those are not likely to pose a big threat unless some drastic changes occur in the way that the pair is traded. We believe that once prices go and hit 1.3815 this would be the end of the dollar strength as we have observed it since last Thursday.
One could even argue that it is already over, however lets not be hasty and try to calculate the impending risks to this outlook, The first and foremost is that price breaks below 1.3750, which will put pressure on the downside. If we get a close on an hourly basis below that level our call will be reversed, however we will care not to act hastily, especially after the federal reserve minutes at 18:00 GMT.
After the event there will be a couple of speakers from the federal reserve - Evans, which is not a voting member of the committee this year and Tarullo, who is a voter and will speak out at 20:00 GMT. To sum up we remain tilted to be buying calls whenever the price dips to the 1.3775-80 area, which is not far from current levels around 1.3790.