Risk aversion was the main theme last week, with worldwide stocks in panic sell-off mode. China devalued the Yuan once again, but it was not enough to contain the negative sentiment among investors, particularly after FED’s chances of a rate hike for this September diminished on the back of tepid Minutes.
The last week of the month will be characterized by the release of GDP figures for several major economies, including Germany, the US and the United Kingdom, among other big market movers, such as USD Durable Goods Orders, Japanese National and Tokyo inflation, and the US PCE on Friday, FED’s favorite inflation figures, used to make decisions.
Additionally, Lockhart and Dudley from the FED will be given speeches, and also RBA Governor, Glenn Stevens, all set to trigger some action across the board.
The EUR/USD pair closed at its highest in two months, a handful of pips below the 1.1400 level, having added nearly 380 pips in three days, with practically no corrections in between.
The pair has advanced beyond its 200 DMA for the first time since May 2014, whilst the 20 SMA has turned sharply higher well below the current level, having provided a strong dynamic support since the beginning of this August, whilst the technical indicators head strongly higher, now entering overbought levels.
Talking about the shorter term picture, the 4 hours chart shows that the RSI indicator stands at 85, and maintaining its sharp bullish slope, whilst the Momentum indicator also stands at extreme overbought levels.
Despite the EUR is bullish, buying at current levels seems quite risky, as the pair has added around 380 practically with no corrections in between.
A downward corrective movement is likely on Monday, and it can extend down to 1.1245, the 38.2% retracement of the latest bullish run, without actually affecting the trend. Additional advances beyond 1.1405 on the other hand, should see the pair extending up to 1.1435, June 18th daily high.