EUR/USD: Structural cracks, next target at 1.1490/1.15

In the EUR/USD constellation, the stars are aligning for what may represent a major macro shift in structure. Earlier on Monday, we tweeted the following: “$EURUSD 3 pushes down on the daily, each one weaker in magnitude. Watch a potential break of the confluent area at 1.1435/50. If acceptance above, this may represent a significant macro shift in structure judging by the maturity of the down-cycle. Latest $COT strengthens case”

By the close of business on Monday (5 pm NY), the breakout and acceptance above the trendline has materialized now, which indicates the first real cracks of the bearish structure that began in late Sept. The build-up of gains occurs with the backing of a bullish outside day at the 50% fib retrace of the 2017 run-up.

On the very short-term, the impulsive run-up has now met a market-makers’ sensitive area at 1.1454 where profit taking is expected, as it represents the 100% projection target from the previous hourly range. Some intraday opportunities to be a seller might arise. Just be mindful that support will be found circa 1.1420 and 1.14/1395. If the gains extend, 1.1490/1.15 will be absolutely huge resistance.

The ebullient mood in the EUR is also supported by the breakout of structure in the 5-yr German vs US yield spread, as depicted by the blue line in the yield chart above. Interestingly, the rise in the EUR occurs at a time when the German vs Italian 10-year yield spread is trading at year lows, which could create downward pressure near-term. If it doesn’t and the breakout of 1.15 is validated, it will be the ultimate sign that the market is moving away from Italy’s concerns.