Well, we have seen the pair sail through the downtrend and the oscillators suggest there could be more short-term momentum behind the move. A basic ‘fair value’ model, using swaps spreads and other variables suggests the pair could move higher as well and as such it’s worth looking at upside targets to work potential offers into.
I looked at the 38.2% retracement of the December to January sell-off at $1.1659 as a possible target, which also coincides with highs seen in 20 and 21 January. As always, it’s important to see if we get a rejection first of the key resistance and establish that the pair is ready to continue in its longer-term downtrend.
The fact that the Greek government has pushed away from seeking a debt write-down and is seemingly keen to negotiate and ultimately compromise is clearly causing traders to cover EUR shorts. I also think oil is absolutely key for EUR/USD and, of course, pairs like USD/CAD, which has seen a strong down move in the last two days.
Oil is the heartbeat of the markets right now and looks as though it’s actually driving USD flows. Keep an eye on US light crude, which is seeing a strong move higher and is now eyeing the downtrend drawn from the August highs.
On a fundamental level, oil rigs have fallen 24% since October, which is also in fitting with the dramatic reduction in capital expenditure and this is having some bearing on price. There has been talk that the refinery strike in the US is having a positive impact. However, I think this is incorrect and believe that, if anything, it should be negative as it increases the prospect of even higher supplies.