- EUR/USD spun its wheels last week, working off overbought conditions
- More of the same might happen in week ahead, with a dip lower towards support seen possible
- More broadly speaking, higher prices are anticipated once the current phase is over
Heading into last week, we were looking for momentum in the euro to stall as it digests gains following the breakout to 3-yr highs. Looking to the days ahead more of the same could be store, but we may see price action on the weak-side until a further period of consolidation passes.
Resistance we have penciled in around a swing-low created during the 2014 sell-off, is proving itself to be a fairly significant hurdle in the short-term. A little more back-and-filling in the current vicinity is seen as a positive as a continued time correction could do EUR/USD some good.
If we see a decline back below last week’s low of 12165, barring strong momentum, it won’t be considered alarming for the long-side of the tape. But soon thereafter a retest of the prior breakout high just under 12100 may be in order.
Holding onto the breakout level, or trend-line extending higher since mid-December at worst, will be needed if we are to see a bullish continuation in the not-too-distant future. A sustained failure below 12100 could indicate a broader intermediate-term trend change.
For now, though, price action is still viewed as constructive and higher prices are seen as the likely outcome once the current digestion-phase is over. The big question is whether the euro will simply correct through time (move sideways) or through time and price (trade down to support).
On the top-side, for the euro to gain traction we’ll of course need to see last week’s high at 12323 crossed before the rally can continue. On further strength, the end objective in mind at this time is a trend-line extending down from the 2008 high (currently near 12600).
Heads up: The ECB will announce its decision on monetary policy on Thursday at 12:45 GMT time, and ECB President, Mario Draghi, will hold a press conference starting at 13:30. For instant analysis you can listen in to Currency Strategist, Christopher Vecchio, as he covers the event live.
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Chart - EUR/USD: Daily
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---Written by Paul Robinson, Market Analyst
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