EUR/USD gained in the past week, closing at the highest level since late 2014 on a weekly basis. The pair made a sustained break above the 1.2000 which carries bullish implications, especially following the earlier failed break.
A bulk of the week’s gain followed the ECB monetary policy meeting that took place on Thursday. ECB President Draghi expressed some concerns regarding the rising exchange rate although did not attempt to jawbone the currency. There was a small downward revision to the inflation forecasts for 2018 and 2019 while the view on growth remained optimistic.
There was little discussion regarding a potential QE tapering other than Draghi stating a decision will likely be made in October.
EUR/USD faced resistance at the August high of 1.2070 following the press conference and pulled back from the level to settle below resistance at 1.2042 to close out the week.
The market focus will shift back to US economic data as US inflation data and retail sales will be released in the upcoming week. Both data points have been weak as of late with CPI falling short of analyst expectations on a monthly basis in the past five readings. Retail sales beat expectations in July after falling short in the prior five readings.
Market sentiment remains positive for the euro with the latest COT report indicating a build in the net long position to fresh highs. In the week to September 5th, Non-commercials increased their exposure from a net 86,519 to 96,309 contracts which reflects a fresh six-year high. The prior high, posted in May 2011, was a net long of 99,516 contracts. The weekly shift in positioning was almost entirely as a result of short covering.
A hold above the psychological 1.2000 handle will be important to extend the momentum in the upcoming week. In the early week, the dollar stands to remain under pressure on expectations of weak US data based on past readings. A failure to hold above 1.2000 shows further support at 1.1920 which is within proximity of a rising trendline that originates from July 5th. The next major target to the upside falls at 1.2200 because of its psychological implications and as the level has been respected on a monthly chart.