EUR/USD Eyes 1.0580 Support Ahead of 4Q GDP

2017-01-26 18:08:00

Talking Points

EURUSD reversal looks to US GDP- Immediate focus lower sub-1.0730
Updated targets & invalidation levels
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Technical Outlook: Euro reversed off parallel resistance extending off the December high this week- Note that the slope of this trendline originates from the broader descending median-line formation extending off the 2016 highs. A hold in daily RSI sub-60 also highlights the threat to the advance off the monthly lows.

EUR/USD 120min

Notes: A closer look at price action shows Euro trading within the confines of a near-term ascending pitchfork formation extending off the December lows. Note that the break below the median-line / weekly open shifts the near-term focus lower with the decline already taking out initial targets at 1.0672. Subsequent support objectives at the 50-line (currently ~1.0650), the 38.2% retracement at 1.0609 & the lower parallel at 1.0580- area of interest for possible exhaustion / long-entries.

Consensus estimates are calling for a 2.2% q/q clip for US 4Q GDP, down from a previous read of 3.5%. Even though tomorrow’s release is expected to highlight a slowdown in both growth & inflation, the data is unlikely to move the needle as it pertains to monetary policy with Fed Fund Futures still pricing in a 74% probably for an interest rate hike in June. That said, from a trading standpoint, heading into the release I would be looking to fade strength while below the monthly / yearly high-day close at 1.0730 with a move lower targeting downside objectives into structural support.

A summary of the DailyFX Speculative Sentiment Index (SSI) shows traders are short EUR/USD - the ratio stands at -1.22 (45% of traders are long)- weak bullish reading
Long positions are 21.2% higher than yesterday and 10.8% above levels seen last week
Short positions are 14.4% lower than yesterday but 12.9% above levels seen last week
Open interest is 1.3% lower than yesterday but remains 12.6% above its monthly average
The current dynamic of building long interest highlights the risk of further near-term weakness in price as the ratio continues to narrow from recent extremes of -1.77. Look for a flip to net long in the coming days to suggest that a more significant reversal is underway.

Relevant Data Releases