$1.15 could be a level to short the euro

May 16, 2015

The euro has risen significantly against the US dollar these past couple of weeks, and prices are reaching a key resistance level around $1.153 (February's highs). A long-term trend line comes in at around the same level, which makes me believe that shorting EURUSD will be again possible starting next week. If indeed this is the case, we would need to see the US dollar stabilize (watch the Dow Jones-FXCM US Dollar Index at around 11,580/90 points for support). With the recent volatility in European sovereign yields, the markets have seemed to have forgotten the long-term fundamentals : the BCE will continue buying up sovereign debt even if disinflationary forces abate. I expect that investors and traders will realize this fact soon enough once yields start falling again, which would make a short strategy on EURUSD attractive. The only real obstacle to seeing renewed pressure on EURUSD is the poor US economic data that is weighing on expectations of a Fed rate hike this year. I don't foresee data improving right away, so this could make shorting EURUSD at $1.15 a bit difficult. A break above 1.16$ would invalidate this strategy, likely leading to a move back up to $1.18 and possibly $1.20 this summer.