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‘Pennant’ pattern break out on EUR/USD targets a move north of 1.3200

FXstreet.com (Barcelona) - The EUR/USD finished sharply higher for a 2nd day in a row, climbing 104 pips to close at 1.3043 and taking out key resistance near the1.3000 level. It was a busy day of economic data from both Europe and the US, which seemed to act as the major catalyst to promote the sharply higher finish. It was a good day for “risk on” assets in general, with both equities and precious metals seeming to get a boost from the US Dollar weakness and finishing the day moderately higher.

According to analysts at Rabobank, “The suite of eurozone confidence indicators released on Thursday had an in-line to slightly-better-than-expected tone to them. Our preferred catch-all indicator, Economic Confidence, came in-line with expectations, rising modestly to 89.4 in May from April’s 88.6. In absolute terms, this range of confidence indicators continues to point to lacklustre economic conditions across the eurozone and the improvement in May falls short of signaling better times ahead. But these data do remind – yet again – that the economy is not spiraling downwards.”

As mentioned previously, some analysts were more focused on the US GDP data and noting the details of the report didn’t look as bad as many would have thought given the sharp decline in the DXY. Furthermore, given the fact month end is tomorrow and there are a number of reports due out of the US, it will be important to monitor Friday’s price action.

According to Kathy Lien of BK Asset Mangement, “Today’s U.S. economic reports were not as terrible as the headline numbers suggest. First quarter GDP growth was revised down to 2.4% from 2.5% as lower government spending and weaker inventory rebuilding offset stronger personal consumption. U.S. jobless claims also rose to 354K from 344K and continuing claims reached 2.986 million, up from 2.923 million. While they missed expectations, these economic reports don't take the country off the road to recovery. While the economy grew less than expected in the first quarter, consumer consumption saw its biggest gain since the fourth quarter of 2010. “

She went on to add, “Personal income, personal spending, Chicago PMI and the final March University of Michigan consumer confidence numbers will be released tomorrow and while these reports are interesting, our focus will be on the global equity and bond markets as they will determine how currencies trade. Tomorrow is also month end rebalancing and with the rise in the dollar and stocks this month, the dollar will need to be sold to rebalance portfolios”

In conclusion, some analysts are pointing out not to overlook the fact there a number of important economic reports due out next week which will no doubt heighten volatility in the pair. Furthermore, it will also be important to keep an eye on risk assets in general, as well as any Fed commentary which may hit the wires over the course of next week.

According to John Kicklighter, Senior Currency Strategist at DailyFX, “this past session’s GDP update and pending home sales report simply do not have the clout to direct the masses’ forecasts. For that matter, Friday’s event risk is equally impotent. For a committed bid in risky assets or exit from those stimulus-supported markets, we may have to wait for more potent data (NFPs) or Fed commentary (Yellen, Williams) next week. In the meantime, the dollar may have taken the speculation of an impending taper a little too far. The US Dollar has posted its first back-to-back daily decline since it began its impressive run to multi-year highs at the beginning of the month. Where equities benefit from quiet on Fed speculation, the dollar is more likely to suffer for it."

From a technical perspective, the price action over the past two days has been impressive and may help lead to further gains in coming sessions. The daily close above 1.3000 confirmed a ‘pennant’ continuation pattern break out which is a bullish development. This pattern has a measured move target near the 1.3210 area, and will remain valid unless the pair closes below 1.2980 (break out area). Initial support sits at 1.3000 (previous resistance, now support), followed by 1.2937 (the 9dma). Initial resistance sits at 1.3060 (previous day high), followed by 1.3114 (the 100dma).

Aussie advances capped below 0.9700

After failing to take out overhead resistance near the 0.9700 area, The Aussie is edging lower in Asia trade, falling 32 pips and sitting at 0.9631. Earlier in the session, we saw Private Sector Credit released out of Australia which came in at 3.1% actual vs. 3.0% forecast, but the print did not have a major influence on the pair.
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