Sentiment
As we described in today's article, GBP/USD: sentiment and technical analysis, from the middle of August the sentiment towards the euro and the pound has been improving. This is especially true of the euro, which according to the Economic Surprise Index has experienced continually better economic data releases for the past few months:
The white line is the economic surprise index, while the blue line is EUR/USD.
Technical Analysis
The daily chart of EUR/USD shows an inverse head and shoulders pattern with a neckline around 1,162, which coincides with the 23,6% Fibonacci level. This zone was penetrated on 27.08.2018, which points to an eventual test of 1,19, the 50% Fibonacci level. We expect resistance around 1,178, this is a zone of previous peaks and the 38,2% Fibonacci level. The DeMarker oscillator penetrates the yellow trendline which points towards a strengthening in upwards momentum. We expect next resistance for the trend around 0,6-0,7, marked by the green trendline.
Due to this we recommend waiting for a correction to enter a long position on EUR/USD. Preferably, the entry should be made as close to 1,162 as possible: in this way the stop-loss can be placed just below the support level.
The level 1,19 coincides with the expectations of most banks for EUR/USD in 2H 2018: What do big banks expect from EURUSD till the end of 2018?
Source: Bloomberg Finance L.P.
Chart: Used with permission of Bloomberg Finance L.P.
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