Euro/dollar hesitated under the 2017 high of 1.2090. No more. It made a clear break and is at 1.2127 at the time of writing. The fresh incentive is the news that German politicians have reached a deal on a coalition after an all-night negotiation session. Merkel and Schulz will now sit in government if there aren’t any nasty surprises. Germany, the largest economy in the euro-zone, has been without a government since it held elections in late September. This will be a pro-European government, as Schulz wanted and as markets hoped for. Macron, France’s president, will also be delighted.
The weakness of the dollar is the main driver, but the euro also enjoys the bullish ECB meeting minutes. In the US, there are worries that today’s inflation report will be a disappointment, resulting in the Fed slowing down the pace of rate hikes in 2018, which currently stands at 3 according to their dot-plot. The greenback is losing ground across the board, including against the poor pound. One of the reasons for the drop of the dollar was a report that China may slow or halt buying of US treasuries.
Given the 1.20 to 1.2090 range, we can extrapolate an additional 90 pips and set the next resistance at 1.2180. This would be the extent of the previous trading range.
The next levels to watch are 1.2280, which was a stepping stone on the way down, 1.2480 which protects the 1.25 level and 1.2725 high up in the sky. It is important to note that all these levels were last seen around three years ago when EUR/USD was tumbling down rapidly. The pair had only a few stepping stones on the way. In fact, the high that will be reached today may well turn into a more important level of resistance than these levels.
Here is how it looks on the euro/dollar weekly chart: