EUR Technical Analysis

The last few days brought with them the potential for yet another test of major support in the low-11500s, an area EUR/USD has held on three occasions since late-May. Will it hold, fold, or was Friday's decline and recovery the carving out of a higher-low from not so obvious support? There is a trend-line from January 2017 running through the bottom of recent price action which also coincides with a lower parallel on the 4-hr chart, this could provide the means to put in place a higher low. However, a break below the lower-parallel/trend-line and an important test of big-picture support will likely develop.

If a higher-low has in fact developed as of Friday, or very close to doing so, then a move higher next week could gain traction. But the euro has its work cut out for it if this is the case, with an upward hill to climb. On a decline down to around 11500 the market will test buyers' resolve. A fourth hold will keep the euro buoyed, and bring to light the distinct possibility of a descending wedge formation maturing in the days/weeks ahead. A break below key support will have price resuming its downhill roll from the spring.

Whether we are in for a higher-low, a test and hold of the low-11500s, or breakdown in the week ahead, it looks like it could be another important stretch of days. Or, the euro may be in for some summer doldrums and bounce around with little conviction in either direction.

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Choppy, contracting price action (wedge/triangle building) can put a trader's patience to the test. The choppier it gets the closer we are to making a material move. The chart pattern currently under construction is coming around nicely with price moving towards the apex.

Symmetrical triangle or descending wedge? Does it matter? Not really. As it stands now it is taking on the shape of a symmetrical triangle, but should we see a break of the 7/19 low (11575), we will likely be looking at a run on the 11500-level. With another hold of this key level, the symmetrical triangle could shape-shift into a descending wedge.

Overall, the days ahead may hold more of the same uninspiring price action. If you are fading levels for scalps, then there is support and resistance to play off. For those looking for a breakout, patience will likely serve you well.

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Coming into the week we were looking for digestion of recent losses to lead to an opportunity for more euro weakness shortly thereafter. Wrong. The turnaround off support near 11300 gave no signs of letting up and with it came the reclaiming of the important 11500 level.

Next week, we will be watching to see whether the aforementioned resistance levels (lines in this case) can keep a lid on continued strength, or if indeed we may have a larger trend reversal on our hands. Even if a much larger rally is to occur, keep an eye on the numerous highs in the mid to upper-11700s as this area could prove problematic on a first touch. On any immediate weakness 11500 is viewed as strong support.

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On Thursday, the euro finally made some headway out of the congestion it's been stuck in during the past few weeks. The breakout turns the once-viewed resistance area in the low to mid-11700s into support, and as long as price stays above the outlook is favorable for another leg higher.

A break below 11700 would put price back inside the choppiness the euro just came from and at the least be a caution signal for longs, if not turn the tone outright negative. At that juncture, we would be inclined to stand aside again as market conditions turn unfavorable for momentum to develop in either direction.

As long as we see support hold, expectations are for the big swing-high from June at 11852 to get tested, if not broken in the week ahead. Looking beyond 11852, the 11900/2000 zone will be targeted. We'll watch price action closely at that point for signs of momentum stalling.

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The Euro is hovering near the middle of choppy range confining price action against the US Dollar for over four months, with technical positioning offering mixed signals on where prices may go from here.

The daily chart is inconclusive. A recovery above the 1.1514-58 zone bisecting the trading range might have been expected to open the door for upside follow-through, but confidence in such an outcome is degraded after a downside break through the same barrier failed to deliver earlier this month. That might imply that the hurdle itself may be losing significance in the minds of traders.

Zooming out to the weekly chart, signs of a bottom may be forming. The outlines of a jagged Head and Shoulders (H&S) bottom have appeared on a test of former range resistance as support. Confirmation on a break above the pattern's neckline at 1.1768 would imply a measured move higher that takes EUR/USD back above the 1.22 figure.

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The euro shed 1% against the greenback to reach 1.1216. This was facilitated by a strengthened dollar, in addition to increased demand for the safe haven assets. Investors are concerned over US-Sino trade relations, as well as the uncertainty over Italy and Brexit. The UK has failed to reach a breakthrough concerning the Irish border, while Italy remains defiant over its 2019 budget.

Since there were national fx holidays in the US and Canada, bond markets were closed. Activity was low on the Forex market. The major US indices took a dive, while the US dollar index made gains.

Day’s news (GMT+3):

12:30 UK: claimant count change (Oct), ILO unemployment rate (Sep), average earnings (Sep).
13:00 Germany: ZEW survey – economic sentiment (Nov).
13:00 Eurozone: ZEW survey – economic sentiment (Nov).
22:00 US: monthly budget statement (Oct).


Fig 1. EURUSD hourly chart.

Current situation:

During Monday’s European session, our pair dropped to the D3 MA line (SMA with a period of 55 and a deviation of 1%). The pair rebounded from this line, but this was short-lived, and with a thin market given the day off in the US and Canada, the drop then continued with renewed vigour.

From 1.1216, the euro recovered to 1.1252. Considering that the stochastic indicator is up, I’m expecting a new wave of sales ahead of the US session. If the bears do everything right, I see nothing stopping them from reaching 1.1207.

If we draw a line through the minima 1.1240 and 1.1216, then the target for sellers is 1.1190. The targets on the daily timeframe are 1.1150 and 1.1025.
Source: Alpari.com/en/

EURUSD: Retail trader data shows 57.5% of traders are net-long with the ratio of traders long to short at 1.35 to 1. In fact, traders have remained net-long since Nov 23 when EURUSD traded near 1.14026; price has moved 0.5% lower since then. The number of traders net-long is 0.2% lower than yesterday and 17.1% lower from last week, while the number of traders net-short is 11.4% lower than yesterday and 8.0% lower from last week.

We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests EURUSD prices may continue to fall. Positioning is more net-long than yesterday but less net-long from last week. The combination of current sentiment and recent changes gives us a further mixed EURUSD trading bias.

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After failing to breach the outer boundaries of resistance last week, EUR/GBP prices struggled breaking below support. This further reinforced that the pair remains range bound (blue area on the chart below) and has much of a way to go before either resuming the dominant uptrend or turning lower. In the meantime, it appears to be slowly running out of room within consolidation and a direction may be made soon.

Looking at the EUR/GBP daily chart, a rising range of support appears to be guiding the currency pair higher (pink parallel lines). Within consolidation, this means that the trend line has a chance of guiding the Euro higher against the British Pound if it holds. That would place the focus back again on near-term resistance. This is a horizontal range in-between 0.90607 and 0.91102. Breaking above it exposes 0.915996.

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The Euro put in a bearish Dark Cloud Cover candlestick pattern on a test of resistance guiding the currency lower against the US Dollar for over a year. The setup hints corrective gains have run their course and dominant downtrend resumption is brewing ahead.

The first layer of noteworthy support lines up at 1.1290, the January 24 low. A daily close below that exposes the November 9 bottom at 1.1216. Alternatively, a daily close above trend resistance - now at 1.1501 – targets the 1.1543-54 congestion area, followed by the October 16 high at 1.1622.

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Heading into last Monday, given the way the Euro has traded in recent months in this low volatility environment, the expectation was for a bounce from support instead of slicing on through. The bounce on Tuesday started to look like other prior lows in recent months, but the final days of the week began to demonstrate a change in character.

The fact that EURUSD is struggling to bounce after selling off and hitting support suggests that sellers are growing in number and that a breakdown of meaning could be just around the bend. As long as price on a closing basis stays below the weekly high at 11341, a neutral bias at the least will be intact.

A drop below 11215, the November low, will leave behind the support we saw hold last week and have the worst levels since June 2017 in play. As discussed on numerous occasions in recent weeks, Euro volatility is very low and due for a pop. A break of key support levels may do the trick in the days ahead.

All-in-all, price action is showing signs of changing from the recent norm, which should have traders on higher-than-normal alert for momentum to develop. It could be another false signal, but then again it might not, and as the saying goes, ‘chance favors the prepared mind.’

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