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Jignesh Davda
EUR/USD

EUR/USD Susceptible to Profit Taking Ahead of Weekend

EUR/USD is likely to close a third week in the green as the pair has been well bid in anticipation of a Brexit deal being reached this week.

British Prime Minister Boris Johnson announced yesterday that EU officials have agreed to the deal that he put forth, taking the UK one step closer towards an EU exit.

The main hurdle now is to get the UK parliament to ratify the deal. Parliament, in a rare fashion, will sit on Saturday to decide on how to proceed next.

While an orderly exit stands to trigger further gains for the single currency, there is a lot of uncertainty and risk at this stage. As the meeting is held on Saturday, the markets will be closed and it is likely that several currencies will gap at the weekly open next week as a result of the outcome from parliament.

Further, the weekly open tends to have thin liquidity which means there could be some drastic price swings. For this reason, I think EUR/USD will be susceptible to some profit-taking today after a decent rally.

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Technical Analysis

Further building towards the case that the currency pair might correct a bit lower from here is a confluence of resistance that is currently present in the currency pair.

EURUSD Daily Chart

EUR/USD faces resistance from a horizontal level at 1.1129 that was previously major support in April and in May. To create a bit of a confluence, the 100-day moving average is also seen slightly above the level.

For this reason, I think the pair might struggle to rally further. However, if it managed to clear the hurdle, the next main area of resistance I see falls at 1.1217.

Bottom Line

  • After an impressive rally, EUR/USD might correct lower as traders are likely to square positions ahead of the weekend.
  • Sterling will probably encounter a large gap at the open next week. As the euro has been rallying on Brexit developments, EUR/USD is also likely to see a bit of a gap at the weekly open.
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