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Euro surges in October: the start of a multi-year trend?

The euro surged against the dollar last month in a powerful bounce that saw the currency rise for the first three weeks of October, one of the few times this has occurred in a nearly two-year greenback uptrend.

The euro surged against the dollar, EUR/USD, last month in a powerful bounce that saw the currency rise for the first three weeks of October, one of the few times this has occurred – the euro rally was the most powerful since early 2018 - in a nearly two-year greenback uptrend, a period in which the US dollar rose 11% against the euro at its peak late last month.

Euro bullishness was particularly pronounced in the week starting October 13, when the currency jumped by 1.2%, resulting in a three week rise of 2.1%. Technical analysts expected a pullback - or at least a sideways move - going into the week starting October 20, which has occurred.

Political risk is simmering in the euro and cable, with all eyes now toward an early December election in Great Britain, when the market will likely again get big-time volatile on Brexit developments.

The US dollar progressively strengthened during the week starting October 20 as expected, reinforced by a series of Brexit passage failures, and was trying to test the critical euro support at around $1.10. The euro was off its nearly $1.12 high set the week of the 13th.

The greenback again began testing nearer the $1.10 euro support level this week. In rather lackluster trading the positive carry for US dollar longs is a powerful support for the greenback.

EUR/USD has been moving broadly in a band roughly between about $1.12 and $1.10. Technically, it seems like the $1.10 level must hold for euro uptrend to remain intact, and alternatively if the euro can blast through $1.12 on the upside the recent rally will likely go to new highs. The longer EUR/USD moves sideways between $1.10 and $1.12 the greater the consolidation of the recent euro rally.

Beginning of a long-term euro bull trend?

The October euro strength begs the question: is this the beginning of a long-term euro bull trend higher, possibly breaking through the four-year EUD/USD high of $1.40? If you talk to AG Bisset Associates, they say that is exactly what is going to happen, and more.

In early 2017, AG Bisset called a euro rally it said was the beginning of a 15-year euro uptrend in what is a major macro market forecast. The euro moved nearly 20% higher through early 2018, when the greenback began its current nearly two-year 11% uptrend, or 11% retracement of the euro rally that started in 2018.

The US dollar has hit a series of higher highs against the euro over the past two years but has not been anywhere near breaking through the key US dollar high of $1.05 against the euro set in early 2017.

So, according to AG Bisset’s reasoning, the current rally euro to could be the beginning of a confirmation of a reversal the 2-year greenback uptrend and an outstanding long-term euro buying opportunity if you missed the EUR/USD four-year low of $1.05.

This information has been prepared by IG, a trading name of IG US LLC. This material does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. You should not treat any opinion expressed in this material as a specific inducement to make any investment or follow any strategy, but only as an expression of opinion. This material does not consider your investment objectives, financial situation or needs and is not intended as recommendations appropriate for you. No representation or warranty is given as to the accuracy or completeness of the above information. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. Any research provided should be considered as promotional and was prepared in accordance with CFTC 1.71 and designed to promote the independence of investment research. See our Summary Conflicts Policy, available on our website.

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