Bank of America Merrill Lynch FX Technical Strategy Research notes that the decline in the USD represented by the Bloomberg US dollar index 'BBDXY' is digesting oversold conditions in a supportive technical area and previously, this area was where markets bought USD.
"As long as the BBDXY remains above support at 1150, the potential for a bounce, maybe even a rally to the upper 1100's"trend line break" area, remains.
>> This favors: EUR/USD correcting the 5 wave rally from the December low to at least the 1.15-1.1440 area, 1.1350 and possibly 1.1225.
However, we think if the BBDXY marks a weekly close below 1150, it would continue to retrace the 2014-2017 uptrend. Fibonacci shows it could fall to 1108.
This would favor >> EUR/USD continuing its rally to the market quoted 1.20 area. Above that is the 50% Fibonacci retracement of 1.2172," BofAML argues.
Source: Bank of America Merrill Lynch Rates and Currencies ResearchOriginal Article
