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May 29 - 09:48 AM

EUR/USD - COMMENT-EUR/USD Set For Increasing Upside Potential

By Christopher Romano  —  May 28 - 10:15 AM

After hugging the 200-DMA for most of today's trading nL1N2DA0VM, EUR/USD rallied to a 2-month high and further gains are probable.
Judging by the continued tightening of German-Italian spreads and EUR/USD's rally to 1.1040 on EBS, investors don't appear too worried about the tough negotiations facing the EU Commission's recovery proposal nP6N2CB025, which received a warm welcome from markets yesterday.
EUR/USD longs could also be looking at inflation expectations.
Euro zone 5-year/5-year inflation swaps EUIL5YF5Y=R rallied above resistance and traded at levels not seen since April 17.
EUR/USD options investors are increasingly expecting higher levels.
Risk reversals show vol premiums for 1-week and 1-month EUR/USD calls are higher than those for puts while 3-month put premiums over calls are quickly eroding.
Technicals highlight upside risks as daily and monthly RSIs rise, a monthly bull hammer is forming for May and EUR/USD is trading above the 200-DMA.
EUR/USD bulls have to contend with 1.1055/65 resistance where the March monthly high, daily cloud top and 50% Fibo of 1.1495-1.0636 sit.
Should EUR/USD longs overcome that impediment tests of 1.1145/50 and 1.1190/1.1200 resistance is likely.

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Refinitiv IFR Research/Market Commentary


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