Update on EURUSD: May 16, 2017

In our last major update on the EURUSD [see: Nov 25 Update] I attempted to tie together currencies, oil and equities in one nice, neat package. My basic premise from that post:

  • DX would top at our 102.098 target despite an imminent rate hike
  • USDJPY would rally strongly into year end, despite the fact that DX was topping
  • SPX would rally strongly into year end
  • EURUSD, having shed 5.9% since our top call in September, would rally to 107-108

Things worked out pretty much as forecast.  DX reached our target (103.82), making no appreciable gains after the rate hike and well on its way to our downside target of 96.789.  USDJPY rallied 5.4% through the year end before topping out and beginning a 3.6% slide.  SPX gained 9% to new, all-time highs.

EURUSD was the one outlier.  It reached our target area in only two weeks’ time and promptly reversed below support.  This was not entirely unexpected, as there was some question as to when oil would top out.  I expected it to have an impact.

Suppose OPEC pulls it together and CL starts another leg higher now?  Stocks will soar, allowing USDJPY and DX to come back to earth.  EURUSD will rebound very strongly — not merely enough to prop stocks up for a month or two.  We’d likely be looking at a rally of several months.  Targets would start at 1.0756-1.0815 and go higher.

After hitting its upside target, EURUSD slumped below its Nov 25 lows, shedding 4.9% over the next several weeks.

It came within .0114 of our primary downside target (102.225, established in early 2015) before beginning a steady recovery that has seen it climb 7.5% from its lows.  We’ll look at why it couldn’t hold the December highs, why it fell short of our 102.225 target, and where it goes next.

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