EURUSD Set Up for More Losses; ECB on Thursday
- EURUSD rejected from around the 2012 low leads to most bearish-looking price action in months
- US Dollar Index reverses from bottom of major long-term support zone, points to tradable low
- ECB on the docket for Thursday, could be a significant catalyst
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Last week, EURUSD put in a strong daily reversal-bar with the wick of the candle just piercing through the 2012 low. The rejection at major long-term resistance came as no surprise as the DXY (of which the euro constitutes ~57 of the index) was trading at the bottom of a long-term support zone. In last week’s forecast, we made note that a reversal could arise quickly, and that it did. Further validating the Tuesday reversal was the rejection on an attempt to trade higher on Friday. The weekly price action was the most bearish we’ve seen in several months. We look for the trend-line off the April swing-low near 11700 to be thoroughly tested in the week ahead. A break below this line of support along with the August low at 11662 will likely usher in an even broader move lower.
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US Dollar Index: Weekly
Dialing in on the 4-hr chart: Before we can think about probing deeper levels there is support in the immediate vicinity of Friday’s close by way of confluence between a trend-line running up from June and horizontal support around 11825. A break below there will open a path up towards the beforementioned levels near 11700 and lower. We may see an initial attempt to bounce again, but look for it to be short-lived.
On Thursday, the ECB meets and the market will be looking for further clarification on when the central bank plans on scaling back its asset purchase program. On Friday, Bloomberg reported that the ECB may not make a final decision until a couple of weeks out from the end of the current program. This headline quickly put a dent in the rally which was underway following the weaker than expected U.S. jobs data. Next week could be a very telling one for the euro…
Related Reading: Did the US Dollar Just Bottom? Bullish vs. EUR, GBP, JPY
---Written by Paul Robinson, Market Analyst
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DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.