The EUR/USD has made a strong surge this Tuesday and is fast approaching a new resistance at 1.225. According to analysts at Deutsche Bank, there is a high potential of the pair hitting the 1.25 mark by September.
What is the bank hinging its projections on? Firstly, the bank expects an improvement in vaccine lags, with “a sizeable bounceback in the relative EU-US PMI differential in coming months”. Secondly, booming consumption (thanks to the stimulus checks) with lagging job creation will create broader USD weakness.
Deutsche Bank predicts that the Fed will be the last G10 central bank to taper its QE program as the employment and inflation targets for the fed to assume a hawkish position are presently unmet. Also, if the ECB tapers its PEPP earlier than the Fed, the bank expects this to be bullish for the single currency.
Technical Outlook for EUR/USD
The surge in the pair has violated the 1.21792 resistance very strongly. This situation makes a good case for a 3% penetration close above the violated resistance, thus clearing the pathway towards the 1.22416 resistance line. If bulls surmount this new resistance, 1.22768 becomes the new target, which brings the pair closer to the 2021 highs around 1.23495.
On the other hand, bears need to see a retracement and breakdown of 1.21792 and 1.21487 to make a case for a further correction. This corrective decline would be targeting 1.20890 and 1.20549. Below these levels, the 1.20000 psychological support standing in the way of a further decline towards 1.19472 and 1.18927.