Euro Rally Pauses As Brexit Lingers - Outlook Remains Bullish For EUR/USD, EUR/JPY Rates

EURO TAKES A BREATHER; BREXIT MAY BE HOLDING BACK EURO

The ambiguity around Brexit may be giving traders a reason to pause in their enthusiasm in the recent Euro breakout. True, EUR/GBP rates have started the week higher. But it’s notable that the Swiss Franc is the top performing major currency on the day – even EUR/CHF rates are lower.

The reach for safe havens in the currency world is a Europe-centric event. Look no further than Brexit. While a ‘no deal, hard Brexit’ hurts the UK more than the EU, the knock-on effects of a fractured trade deal may spill into international relations (e.g. security and military alliances) and perhaps coronavirus vaccine development and distribution coordination.

The net-result of the concern around Brexit is that Euro rally has paused, but a small setback may not mean the bullish breakout attempts are finished. Both EUR/JPY and EUR/USD rates are working on daily doji candles following Friday’s hammer candles, suggesting that a simple breather is taking place. The upcoming December ECB meeting, despite expectations for enhanced easing, seems like a non-concern at the moment.

EUR/USD RATE TECHNICAL ANALYSIS: DAILY CHART (DECEMBER 2019 TO DECEMBER 2020) (CHART 1)

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EUR/USD rates are working on a doji candle following their bullish breakout above sideways range resistance in place since late-June. Overall, the outlook remains bullish following several weeks of EUR/USD rates maintaining their elevation above the downtrend from the 2008 and 2014 highs (from the all-time high). EUR/USD rates are holding their daily 5-, 8-, 13-, and 21-EMA envelope, which is in bullish sequential order. Daily MACD is trending higher above its signal line, while Slow Stochastics are steadying in overbought territory.

Momentum remains in bulls’ favor as the prospect for a longer-term bottom come into focus. It still holds that final targets for a simple doubling of the broader range dating back to late-June would suggest gains through 1.2600 in the coming months.

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