EUR/USD reaches 10-month highs above 1.13 as bullish momentum remains strong
The EUR/USD pair continues to build on its daily gains as the selling pressure on the greenback remains unabated through the American session. After piercing above the 1.13 handle, the pair reached its highest level since August 23 at 1.1350 and is now trading at 1.1348, up 1.5%, or 170 pips, on the day.
Comments from the ECB President Mario Draghi brought the first euro buying wave in the European session as he said that reflationary forces have replaced deflationary forces and the growth in the euro are was well distributed and above trend. Later in the day, a Bloomberg story, which claimed that Draghi argued the ECB could look through transitory inflation weakness when formulating monetary policy, provided an additional boost to the shared currency. The Euro Index gained more than 1% while the EUR/JPY pair jumped nearly 2% on the day, reaching its highest level in 15 months above 127.
- ECB's Draghi: ECB could look through transitory inflation weakness - Bloomberg
On the other hand, Fed Chairwoman adopted a relatively dovish tone in her statements on Tuesday, failing to help the greenback recover its losses. The US Dollar Index is now trading at its lowest level since the U.S. election day in November at 96.09, losing 1.05% on the day.
- US Dollar Index drops sharply, eyes lowest close since October
- Fed's Yellen: We intend to very gradually and predictably to shrink our balance sheet
Technical outlook
Valeria Bednarik, Chief Analyst at FXStreet writes, "...there no signs of upward exhaustion just yet, and given that the pair broke above 1.1300, further gains are likely for the upcoming sessions as long as pullbacks towards the level attract buying interest. In the 4 hours chart, technical indicators have decelerated, but maintain their bullish slopes within overbought territory, with the RSI indicator currently at 80, while far beyond the current level, the 20 SMA accelerated north, crossing above the 100 SMA, another sign of the dominant bullish momentum."
1.1366 (Aug. 18 high) could be seen as the initial hurdle for the pair ahead of 1.1400 (psychological level) and 1.1430 (Jun. 23 2016 high). On the downside, supports locate at 1.1300 (former resistance), 1.1255 (Jun. 1 low) and 1.1165 (Jun. 20 high).