EUR/USD may soon trade in a much higher range
Aug 20 (Reuters) -EUR/USD struck a fresh 8-month high Tuesday and rallied above the psychological 1.1100 level, and the possibility the pair rallies further and establishes a much higher range is increasing.
EUR/USD rallied sharply off its 0.9528 2022 yearly low and since January 2023 has been trading in essentially the 1.0500-1.1100 range. Closes above and below that range were typically short lived.
The probability EUR/USD will close above 1.1100 and rally significantly is rising.
German-U.S. 2-year yield spreads which EUR/USD is correlated with, recently tightened sharply and hit their tightest in 13 months. Recent price action for spreads indicates consolidation is taking place. That consolidation suggests the tightening is likely to extend eventually.
Further tightening should reinforce the case for EUR/USD to rally.
Technicals highlight upside risks. The down trend off 2023's yearly high was recently broken and the rising monthly RSI is not overbought, which implies upward momentum remains.
The combination of the trend line break and break of the 1.0500-1.1100 range, should it occur, would be very bullish.
The Fed may determine if EUR/USD rallies further.
Should Fed Chair Jerome Powell strike a dovish tone Friday and investors expect the Fed to cut more aggressively than is currently expected, dollar weakness may intensify.
The probability EUR/USD rallies above 1.1700 and trades in a 1.1700-1.2300 range would then increase.
For more click on FXBUZ
(Christopher Romano is a Reuters market analyst. The views expressed are his own)
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