EUR/USD Technical Outlook: Euro Price Pattern Colliding with ECB

What’s inside:

• EUR/USD ‘head-and-shoulders’ top nearly completed, but…
• A break of the ‘neckline’ is required to validate the pattern
• ECB meeting on Thursday could make or break the price sequence

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Last week, EUR/USD ended not too far from where it began, netting little change over the course of the five sessions. The ‘Head-and-shoulders’ top continues to mature, with nearly three months of price action behind it. However, it won’t be validated until we see the euro decline below the ‘neckline’ which lies very near the monthly low at 11669. The ‘right shoulder’ appears to have been solidified back on October 12, but until we see a daily closebelow the ‘neckline’ the area just below 11700 will be treated as support. If support holds the H&S top could morph into a descending wedge or something else all-together. This makes it prudent to take a reactionary stance versus predicting.

The timing of the nearly completed pattern and next week’s highly anticipated ECB meeting is certainly intriguing. It’s the type of clash or confluence between the technical posturing and a fundamental catalyst which could set into motion one-way trade for the foreseeable future. It appears, though, that a move higher will be the tougher road given the long-term levels in place from 2010-2012. On the other hand, a confirmed break of the ‘neckline’ should offer up the cleaner trade.

EUR/USD: Daily

For a longer-term outlook on EUR/USD, check out the just released Q4 Forecast.

As the key component of the US Dollar Index, the euro, of which it holds a hefty 57% weighting in the index, will make or break the DXY one way or another. The chart is effectively a mirror image of the euro and has plenty of support behind it via a support zone extending all the way back to 1998 and the under-side trend-line extending beneath bottoms since 2015. The combination of long-term support and a bullish price sequence unfolding suggests we’ll see the dollar rally even if over the long-term it proves to be nothing more than a correction of the decline starting at the beginning of the year.

US Dollar Index: Daily

---Written by Paul Robinson, Market Analyst

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