EUR/USD – Bullish Views Getting Put to the Test
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- EUR/USD probes key support confluence
- 1.1020 should prove critical over next couple of days
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I wrote last week about the potential importance of the 1.1035/1.1065 area in EUR/USD. The zone marks a key confluence of several key technical levels including the 200-day moving average, the December high, 3rd square root relationship of the year’s high, the 50% retracement of the year-to-date range and the 38% retracement of December – January advance. After an initial attempt to bounce from this zone late last week, the euro has broken sharply lower this morning and a daily settlement below this zone is looking quite possible.
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This obviously should have some pretty negative near-term technical consequences for the single currency, mainly because I think it sends a strong signal that the move off the December lows was probably just a correction against the primary downtrend. Continued weakness (assuming we get a close below 1.1035) below downside pivots at 1.0950 and 1.0850 would further confirm this thinking, but ultimately in the grand scheme of things I think the 1.0600 area is what matters. I have been fairly neutral on EUR/USD this year above 1.0600 as this level marks an external parallel from a pitchfork structure drawn from the 1985 low in the (synthetic) euro and is where the exchange rate bottomed in early December. Below 1.0600 truly confirms a broader breakdown and opens the door to another aggressive slide in the exchange rate, but first things first. A failure to close under 1.1035 would keep bull hopes alive in the near-term, but traction over 1.1200 is really needed to turn the near-term technical structure more constructive.
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--- Written by Kristian Kerr, Senior Currency Strategist for DailyFX.com
DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.