Technical Tools

Support and resistance (S/R). Price levels, trendlines and Fibonacci retracements. Price action, candlestick and chart patterns. Simple moving averages (SMA). Commitments of traders (COT) indicator, which displays speculative positioning in FX futures market, used as a proxy for speculative positioning in spot FX market.

Weekly Chart



The pair convincingly broke below the long term trendline drawn off of 1985 and 2000 lows. In the process, the pair extended the 1.05 - 1.15 range that it has been consolidating in for more than two years. Lower prices were not sustained and the pair seems to be headed to retest the trendline from below.

Speculative Positioning

Non-commercial traders have been net short Euro FX futures contract since May 2014, hitting an all time high in March 2015 at 226.6K contracts. The gap (19.7K) between bulls (159.6K) and bears (179.3K) has been narrowing after it hit a high of 137.4K in final quarter of the last year.

Daily Chart


1.0340 is the lowest that the pair traded in fourteen years. Good demand below 1.05 was enough to reverse the shorter-term trend. 50 day SMA that capped the pair since the start of Q4 gave way in January and should now act as a support. 1.085 - 1.09 is the initial resistance.

Fundamentals

The ECB will buy less assets per month but the programme has been extended at least until the end of the year. The FOMC hiked federal funds rate corridor by cumulative 50 basis points in December and March while remaining cautious. New U.S. Administration may have a tough time implementing reforms.

Prediction

Taking into account all the above-mentioned factors, I expect the pair to be trading near 1.0925 towards the end of the forecast period which will conclude on the 1st of May, 2017, at 12:00 GMT. Ideally, the pair will follow the expected price path as outlined on the charts.
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