Euro at 7-Week High, Breaks 55-DMA

The euro soared to the highest since late February as risk aversion unwound. We look at some of the reasons for the difficult-to-explain rally. The upcoming session features the Westpac Leading Index for Australia. 2 new Premium trades and a new trading note have been added to EURJPY ahead of this week's G20 meeting. The EURUSD short (dual trade) has been modified (not yet filled) ater both longs hit all targets. We also modified the existing trade in silver. Full details in the latest Premium Insights

The weak German ZEW sentiment survey was the only real news for euro traders to ponder on Tuesday but after a brief dip the euro lunged skyward – hitting 1.3200 after touching 1.3030.

There continues to be chatter about interest in European assets from Japan (French debt) and China (everything else). Otherwise there is talk of unwinding large, long-term positions in gold funded in euros.

Those stories are hard to pin down but the technicals paint a persuasive picture. The main feature at the bottom of the market was the inability to break below 1.3000/20 despite the risk rout on Monday and soft data. As EUR/USD turned higher it encountered the cluster of resistance around 1.3125 represented by the 38.2% retracement of the Feb-March fall and the 55dma. After those levels broke the 100dma quickly followed and the pair rallied as high as 1.3202 before easing back to 1.3180.

In recent EUR/USD history, the 55dma has been an important trigger. In the previous 4 instances following a close through the 55dma, the average gain/loss over the following five days is 145 pips. In 3 of those 4 instances the gains/losses over the subsequent month were substantially larger.

The upcoming session should give traders a chance to digest the recent moves. The long item on the calendar is the Feb Westpac leading index. The prior reading was +0.3% but this release rarely moves the market.