EUR/USD targets 1.18 as hedge funds increase bullish bets on the euro

The EUR/USD pair spiked as the euro continued its unstoppable rally against the greenback. The pair is trading at 1.1750, which is the highest it has been since September 2018.

Upbeat economic data from Europe

In recent weeks, data from Europe has shown that the bloc is making steady progress. On Friday, data from Markit showed that manufacturing and services companies in the region returned to growth in July. Other numbers from Eurostat have painted a picture of an economy that is growing faster than expected.

This growth is attributed to the falling number of coronavirus cases in the region and the fiscal and monetary stimulus package from the ECB. In its June meeting, the bank decided to increase the quantitative easing program by €600 billion euros to €1.35 trillion. And, last week, EU leaders agreed to pass the €750 billion stimulus package that was proposed by the European Commission.

Data released by the ifo institute today showed that businesses are upbeat about the German economy. The ifo Business Climate Index rose to 90.5 in July from the previous 86.3 points. That was the third straight monthly gains. In the manufacturing sector, capacity utilisation increased from 70.4 to 74.9. The report said:

“In the service sector, the Business Climate Index rose strongly and is now in positive territory. Service providers were distinctly more satisfied with their current situation. Their expectations for the coming months also saw a significant improvement.”

Hedge funds and other speculators are noting the progress. According to the CFTC, the speculative net positions for the EUR rose to 125k in June and are at their highest level since 2018. The positions have been rising for the past three consecutive months.

US durable goods rise

The EUR/USD pair also reacted to the durable goods orders from the United States. According to the Census Bureau, the headline durable goods orders rose by 7.3% to $206 billion in June after rising to $192 billion in May. June was the second consecutive month of gains. Unfilled orders declined by $15.4 billion while inventories rose by $0.4 billion to $425 billion.

Like the Eurozone, the US has released impressive numbers in recent months. However, the biggest challenge is that the country has also released shocking coronavirus statistics. The country has reported more than 4.1 million infections and more than 130K deaths. And, yesterday, the country released more than 54K new cases.

As a result, many analysts have ruled out having a V-shaped recovery in the US. Indeed, in their earnings results two weeks ago, US banks allocated more than $28 billion in nonperforming loans. This sent a signal that the economy is in really bad shape. Jamie Dimon, the CEO of JP Morgan said:

“This is not a normal recession. The recessionary part of this you’re going to see down the road. You will see the effect of this recession. You’re just not going to see it right away because of all the stimulus.”

EUR/USD technical forecast

The weekly chart shows that the EUR/USD pair has been in an upward trend in the past six straight weeks. The price is above the short and medium-term moving averages and is also slightly above the 38.2% Fibonacci retracement level. Also, the two lines of the MACD has moved to the highest level since May 2018. Therefore, the pair is likely to continue rising as bulls target the next resistance level at 1.2000.