- EURUSD underwent a bounce last week, but that is all it appears to have been
- Bearish intermediate-term pattern could soon come into full view
- In the shorter-run the upper-11800s seen as problematic while mid-11600s seen as support
For a longer-term technical and fundamental outlook on EURUSD, see our Q4 Forecast.
The outlook for EURUSD heading into last week was for a bounce to develop, but that was all it was expected to be – a bounce. And now with resistance standing in the way and a broad topping formation dating back to early-August coming further into view, we’re ready to shift into reverse. The area from 11825 to 11880, as we noted a week ago, is viewed as a fairly formidable area of resistance. Should we see resistance hold as reliable and a decline soon develop, the ‘right shoulder’ of a ‘head-and-shoulders’ pattern could become cemented.
Support on weakness will come in at the neckline of the pattern, which arrives near the monthly low at 11669. Given the lack of recent volatility a break below there may not develop in the days ahead, but if we see a closing bar below the ‘neckline’ of the formation then a much broader move lower is expected. For now, though, the ‘neckline’ will be viewed for what it is – support. A strong push beyond the 11880/910 area will be needed if the bounce is to potentially develop into something more meaningful.
Looking at the 4-hr time-frame, we can see the resistance zone which the euro is struggling at. In confluence with this zone is the trend-line running down off the September high, which adds even more importance to the area which the euro is currently struggling at.
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With the euro having a ~57% weighting in the US Dollar Index (DXY) we typically take a quick look at the benchmark. This week will be no different. The DXY is continuing its mirror-image ways to the euro all the while trading in a very big long-term support zone. There is trend-line support near-by off the September low in addition to support in the area surrounding 92.50. Of course for the ‘inverse head-and-shoulders’ to be validated it will need to carve out a ‘right shoulder’ soon and then cross above the ‘neckline’ of the formation near 94. If this is to happen it will almost certainly happen in unison with EURUSD crossing below its respective ‘neckline’.
US Dollar Index: Daily
---Written by Paul Robinson, Market Analyst
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