The U.S. dollar sold off for the third day against the Euro. The U.S. trade deficit widened as expected to $60 billion in May, and jobless claims fell slightly more than expected last week. Finally, home foreclosures fell in June, but default rates are expected to increase as variable rate mortgages reset. The overall sentiment is still dollar weakness on concerns that subprime mortgage woes will spill over into the rest of the economy.
The Euro strengthened for the fourth straight session against the dollar. Q1 GDP grew 0.7% above estimates of 0.6% further reinforcing another Eurozone rate hike is in likely in October and thus a stronger Euro. Look for continued Euro strength as rates in the U.S. are likely to remain unchanged while growth and rates in Euro are likely to rise. Look for this Euro rally to take a breather on profit taking and opportunities to buy on dips.

The following technical analysis gives us a detailed lookout on what is expected to happen to the pair.

The buying point of EUR/USD is at 1.3777 or 1.3780; based on a strong support at 1.3775 and the continuation of an uptrend.

-Pivot Point first resistance line is the first target taking profit at 1.3804 and the next
target will be the second pivot point resistance level at 1.3828
- Fibonacci retracement 23.6% will be the stop loss at 1.3705

To strengthen our analysis; we use many other indicators, starting with MACD (Moving Averages convergence divergence); we notice the crossing of the two moving averages below the zero line, the shorter term moving average is faster than the long term and is pointing upwards. In order to find the power of the market, we use RSI (Relative Strength Index). In this example RSI is clear uptrend.

The momentum oscillator is very important to understand the strength of the market and as we see on the graph; it break the zero line. The Stochastic oscillator breaks 20% line and moving upwards. Most of the indicators show us the strength of the Euro against the US dollar.

* The following analysis is for information only; Finotec is not responsible for any
decisions or misinterpretations based on the given text.

By Finotec’s professional analyst,
Tony B.

dealingdesk@finotec.com