Euro prices collapsed to fresh yearly lows against the US Dollar today before reversing sharply higher on the back to the European Central Bank (ECB) interest rate decision. The recovery is now testing a key resistance pivot and the focus will be on the weekly close in relation to this critical zone. These are the updated targets and invalidation levels that matter on the EUR/USD charts this week. Review this week’s Strategy Webinar for an in-depth breakdown of this Euro trade setup and more.
Euro Price Chart – EUR/USD Daily
Technical Outlook: In my latest Euro Weekly Price Outlook we noted that the, “focus is on a reaction off this threshold with the bears at risk while above the 61.8% retracement at 1.1186. A break / weekly close below would be needed to keep the short-bias viable targeting 1.1107 and former channel resistance, currently around ~1.1050.” EUR/USD crashed through this support zone and the monthly opening-range lows early in the week with price registering a low at 1.1101 before reversing sharply higher post-ECB. A daily close at these levels would mark an outside-day reversal off fresh yearly lows – watch today’s close.
Initial resistance is back at former support at 1.1182/86 with a breach / close above 1.1220 needed to alleviate further downside pressure near-term. Ultimately a close below 1.1107 is needed to mark resumption of the broader down trend- such a scenario targeting the lower parallel, currently around ~1.1060.
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Euro Price Chart – EUR/USD 120min
Notes: A closer look at Euro price action shows EUR/USD trading within the confines of an embedded descending pitchfork formation extending off the late-month highs. Note that price turned just pips from the lower parallel today on building divergence. The immediate focus is on near-term resistance here at 1.1182/86 backed closely by the Friday low / trendline confluence at ~1.1203 and the 38.2% retracement of the June decline at 1.1220 (near-term bearish invalidation). Initial support rests at the yearly low close at 1.1129 backed by 1.1107.
Bottom line: Euro has broken below a key support zone with the decline already rebounding off initial targets at 1.1107. Watch the weekly close- a break back above 1.1186 would suggest a more significant low was set today. From a trading standpoint, the risk does remain lower IF we close the week within this formation- I’ll be on the lookout for possible downside exhaustion on a pullback towards the yearly close low at 1.1129. Keep in mind we have the FOMC & US Non-Farm Payrolls (NFP) on tap next week.
For a complete breakdown of Michael’s trading strategy, review his Foundations of Technical Analysis series on Building a Trading Strategy
EUR/USD Trader Sentiment
- A summary of IG Client Sentiment shows traders are net-long EUR/USD – the ratio stands at +3.15 (75.9% of traders are long) – bearish reading
- Traders have remained net-long since July 1st; price has moved 1.9% lower since then
- The percentage of traders net-long is now its highest since March 15th; EURUSD was near 1.1323
- Long positions are 10.1% higher than yesterday and 20.5% higher from last week
- Short positions are 13.0% lower than yesterday and 27.8% lower from last week
- We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests EUR/USD prices may continue to fall. Traders are further net-long than yesterday & last week, and the combination of current positioning and recent changes gives us a stronger EUR/USD-bearish contrarian trading bias from a sentiment standpoint.
See how shifts in EUR/USD retail positioning are impacting trend- Learn more about sentiment!
Relevant Euro / US Data Releases
Economic Calendar – latest economic developments and upcoming event risk.
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– Written by Michael Boutros, Currency Strategist with DailyFX
Follow Michael on Twitter @MBForex