www.investavenue.com
Hans Guenther Redeker from
BNP Paribas

Broad-based dollar weakness has continued to be the main theme over the past week, as reflected in the performance of the USD index. Indeed, the dollar’s trade-weighted index continued the sharp decline which started at the beginning of April, breaching initial trendline support at 114.15 to test long-term up trendline support intervening at 113.44 on weekly charts. Although a corrective rebound is currently being witnessed from the trendline support, the medium-term technical picture for the USD TWI has become increasing bearish over the past month, with mounting evidence to suggest that a major top in the dollar is developing. A break through the 113.44 up trendline support will provide another strong bearish signal, opening the downside potential towards 111.31 initially. The current corrective rebound should remain limited to resistance at the 115.46 level, which represents a 38.2% retracement of the decline witnessed from the 118.00 level.
From a technical perspective, the recent dollar weakness has been especially important for the EUR/USD outlook. Indeed, the rally witnessed in EUR/USD over the past week has been technically very significant, insofar as a break out through the upper boundary of the major consolidation triangle, which had developed over the past 12-months, was achieved. The break through triangle resistance at the 0.9095 level triggered an acceleration in euro gains to 0.9190, and we expect further gains to target major medium-term resistance at the 0.9330 barrier. A break above 0.9330 will trigger a very bullish medium-term signal, opening the upside potential towards 0.9590 initially.
However, the euro is currently experiencing a corrective pullback following the recent strong gains, but as long as key support at the 0.8990 level remains intact, the developing euro uptrend should persist. Given that the medium-term technical outlook for EUR/USD is now turning bullish (technical indicators have also been developing bullish signals, supporting the recent euro upmove) together with the proximity of clearly defined key support at the 0.8990 level, the current pullback provides a renewed EUR/USD buying opportunity.