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Euro has plummeted more than 6% off the yearly highs with the decline now testing an area of confluent support which could offer a near-term reprieve to the recent sell-off. That said, the focus is on a break of the 1.1709-1.1827 range for guidance with the broader downside bias at risk near-term.

EUR/USD Daily Price Chart

EUR/USD Price Chart - Daily Timeframe

Technical Outlook: In last week’s Euro Technical Perspective we noted that, “The immediate EUR/USD decline is at risk” as price was, “approaching confluence support around 1.1709/45 where the 38.2% retracement of the late-2016 advance converges on a parallel of the dominant slope extending of the November low.” Price registered a low yesterday at 1.1717 before rebounding higher on building momentum divergence and highlights the near-term threat for a larger recovery.

Initial resistance is eyed at 1.1827 and a daily close above this threshold (with and RSI recovery above 30) would suggest a more significant low may be in place. A break lower from here invalidates the reversal play with such a scenario targeting the 2016 high at 1.1616 backed closely by median-line support.

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EUR/USD 240min Price Chart

EUR/USD Price Chart - 240min Timeframe

Notes: A closer look at Euro price action sees the pair trading within the confines of descending pitchfork formation with price rebounding off parallel support extending off the 5/8 low (red). Note that the drop into 1.1753 achieves the broader measured objective of the February – April consolidation break and IF price is going to rebound, this would be a good spot.

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Bottom line: Euro is testing the confluence of near-term down-trend AND longer-term uptrend support here and we’re on the lookout for downside exhaustion / recovery in price while above 1.1709. A breach above 1.1827 targets 1.1897 backed by the 50-line (~1.1950s) and the upper parallel / yearly open at 1.2005.

For a complete breakdown of Michael’s trading strategy, review his Foundations of Technical Analysis series on Building a Trading Strategy

EUR/USD IG Client Positioning

EUR/USD Client Sentiment
  • A summary of IG Client Sentiment shows traders are net-long EURUSD- the ratio stands at +1.2 (54.5% of traders are long) – weak bearishreading
  • Retail has remained net-long since April 30th; price has moved 2.8% lower since then
  • Long positions are 3.1% higher than yesterday and 3.6% higher from last week
  • Short positions are 2.4% lower than yesterday and 12.5% 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. Traders are further net-long than yesterday and last week, and the combination of current positioning and recent changes gives us a stronger EURUSD-bearish contrarian trading bias from a sentiment standpoint.

See how shifts in EUR/USD retail positioning are impacting trend- Learn more about sentiment!

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Relevant Data Releases

EUR/USD Economic Calendar

DailyFX Economic Calendar - latest economic developments and upcoming event risk

Other Setups in Play

- Written by Michael Boutros, Currency Strategist with DailyFX

Follow Michael on Twitter @MBForex or contact him at mboutros@dailyfx.com