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Euro has rallied more than 2% against the US Dollar from the yearly lows registered last week with the advance now consolidating just below down-trend resistance. These are the updated targets and invalidation levels that matter on the EUR/USD charts heading into the close of the week. Review this week's Strategy Webinar for an in-depth breakdown of this oil price setup and more.

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Euro Price Chart – EUR/USD Daily

Euro Price Chart - EUR/USD Daily - Euro vs US Dollar Technical Outlook

Chart Prepared by Michael Boutros, Technical Strategist; EUR/USD on Tradingview

Technical Outlook: In my latest EUR/USD Price Outlook we highlighted this descending pitchfork formation extending off the yearly highs – a break below the median-line saw a test of the lower parallel last week with the subsequent rally now testing downtrend slope resistance at the 75% parallel. Price has been in consolidation for the past few days just below this threshold and we’re looking for the break for guidance.

A topside breach targets the 61.8% retracement at 1.1265 backed by the upper parallel / 1.13 – a close above this threshold is needed to suggest a larger price reversal is underway targeting 1.1347/62. Initial support rests at 1.1186 backed by the median-line / 1.1107- Key support at the yearly low-day close at 1.1075 – weakness beyond this point would mark resumption of the broader downtrend.

Euro Price Chart – EUR/USD 120min

Euro Price Chart - EUR/USD 120min - Euro vs US Dollar Technical Outlook

Chart Prepared by Michael Boutros, Technical Strategist; EUR/USD on Tradingview

Notes: A closer look at EUR/USD price action shows Euro in a narrowing range just below the upper parallel heading into the close on Thursday- look for a break of this range. A downside break below 1.1165 would expose a larger decline towards 1.1138 and the weekly open / 61.8% retracement 1.1106/12 – both areas of interest for possible exhaustion / long-entries IF reached.

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Bottom line: Euro is testing downtrend resistance - From a trading standpoint, the immediate focus is on a breakout of this near-term consolidation for guidance. That said, for now the idea is to favor fading weakness on a pullback while above the weekly open (1.1106) with a breach of the high needed to fuel the next leg in price. It’s do-or-die for Euro from here though- failure at these levels could see a large-scale move lower, watch the close on Friday. Review my latest Euro Weekly Price Outlook for a longer-term look at the technical picture for EUR/USD.

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

Euro Trader Sentiment

Euro Trader Sentiment - EUR/USD Price Chart
  • A summary of IG Client Sentiment shows traders are net-long EUR/USD - the ratio stands at +1.19 (54.4% of traders are long) – neutral reading
  • Traders have remained net-long since July 1st; price has moved 1.4% lower since then
  • Long positions are 7.2% lower than yesterday and 37.7% lower from last week
  • Short positions are 5.3% lower than yesterday and 48.7% higher from last week
  • We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests Euro prices may continue to fall. Yet traders are less net-long than yesterday & compared with last week. From a sentiment standpoint,the recent changes in positioning warn that the current EUR/USD price trend may soon reverse higher despite the fact traders remain net-long.

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

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- Written by Michael Boutros, Currency Strategist with DailyFX

Follow Michael on Twitter @MBForex