EURUSD Technical Highlights:
- EURUSD pullback could carve higher-low before another thrust higher
- Support zone from 11730 down to 11660
- Important risk events on Wednesday (FOMC) and Thursday (ECB)
Heading into last week, we were looking for the euro to rally after posting a reversal at long-term support, which it did for most of the week until Friday. The move lower to end the week wasn't damaging to a bullish outlook, and in fact viewed as a potential opportunity this coming week for would-be longs to buy the dip.
There is a key zone of support from around 11730 down to 11660, which EURUSD held on several occasions during the latter part of last year. The euro was able to recapture this once strong level of support last week and will be our first zone to watch for a higher-low to develop.
Should we see buyers step up in the aforementioned zone, we’ll be look for at least one more thrust higher towards the 11900/12000-area. A successful test could already be in the rear-view mirror as not only on Friday did the top of the zone hold, but the trend-line off last week's low (most easily visible on the 4-hr chart) provided support as well.
Even if the trend-line and Friday low were to break, as long as the low-end of the zone holds, the euro will remain in play for a dip-trip. If an aggressive decline starts to unfold, though, the trend-line extending higher from January 2017 will again come into play, along with the weekly support from 2015/16.
It will be extremely important for those lower support levels to hold to keep the euro from quickly sinking much further. And even if a test and hold is successful at that point, the deeper retracement off the swing-high will take the wind out of the sails for the long-side until further repair can be done.
We should learn a lot as to how the market feels about the euro in the week ahead with the FOMC on Wednesday and, even more importantly, the ECB on Thursday. With higher-than-normal volatility expected next week traders will want to adjust risk parameters accordingly.
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EURUSD Daily Chart (Looking for dip to hold)
EURUSD 4-hr Chart (May have already found support)
For further indications as to which way the euro may be headed next, check out the IGCS Client Sentiment page. As a contrarian indicator, sharply increasing longs may add to a short bias, while rapidly increasing short positions will help bolster a case for longs.
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---Written by Paul Robinson, Market Analyst
You can follow Paul on Twitter at @PaulRobinsonFX