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Forex: EUR/USD notches a solid day of gains as ‘risk on’ mentality continues?

FXstreet.com (Barcelona) - In a day where risk assets were primarily well bid across the board, the Euro was able to notch some decent gains, finishing up 81 pips at 1.3159. The initial catalyst which seemed to help push the pair higher was the German Industrial Production (MoM) release which came in at 1.2% actual vs. -0.1% forecast.

According to analysts at TD Securities, “In Europe, a solid German industrial production release has boosted the EUR. Not significantly though, as the very well established range that has held since early April remains firmly intact. EUR focus remains on the evolving ECB message, which as we heard last week remains open to another rate cut. They have not signaled any balance sheet expanding programs, however, which overall could leave the EUR well supported.”

The German data also seemed to give a boost to both commodities and equities, with oil notching its’ highest close since late March and the S&P 500 closing at a new all time high of 1632.59. The recent behavior of the EUR/USD is beyond confusing as it appears to follow risk assets some days and others have no correlation to outside markets at all. Although it must be noted, both the EUR does continue to outperform the commodity currencies such as the AUD and NZD.

Although the German data has been better than expected the past two days, some analysts caution about getting to optimistic. Remember, it was just last week when the Euro sank a full cent after ECB President Mario Draghi mentioned the possibility of negative interest rates on deposits. Since then, we have heard other ECB members speak both for and against the idea.

According to Kathy Lien of BK Asset Management, “Overall, it appears that manufacturing will now provide a boost to first quarter GDP. The outlook of the second quarter is also promising with construction activity generally set to increase as the weather improves. Since the European Central Bank is watching incoming data closely, the latest reports will relieve some of their near term concerns. However the ECB monthly report is scheduled for release tomorrow and we still expect it to echo Draghi's cautious and bearish tone.”

From a technical perspective, the pair is again attempting to approach the upper end of the recent trading range between 1.3240 and 1.2950. The RSI (14) is again attempting to break through critical resistance at 60, which if done could help bring in additional momentum buying. The short term moving averages are back in bullish set up, with price above both the 9 and 20dma’s. Initial resistance sits at 1.3194 (previous day high), followed by 1.3243 (upper end of range). First support sits at 1.3121 (the 9dma), followed 1.3083 (the 20dma).

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