EUR/USD Weekly Technical Outlook: Strong Euro Thesis Growing Legs
EUR/USD Technical Highlights:
- EUR/USD continues to hold major support around 11500
- Descending wedge has a bearish tilt to it, but…
- We we’ll run with a top-side breakout should it develop
- US Dollar Index (DXY) posted back-to-back bearish reversal bars
During the past few weeks the euro found support three different times via the 11500-line, which roughly represents the top of the 2015/16 range. Friday’s rip was impressive enough to cast doubt on the notion that the descending wedge developing since late-May will lead to an eventual breakdown.
Should this 3rd attempt to trade lower prove to have given the euro a passing grade, a recovery in the week ahead into the 11800s and higher could quickly develop. Trade above 11720 will have focus on the ECB-day high at 11852. Should the euro falter yet again, though, pressure on the 11500-level might become too great to hold. It’s looking like the less probable scenario after the late-week surge, but a break of 11500 will in all probability have sellers hitting bids in earnest.
Overall, EUR/USD is poised to trade higher in the days ahead, and while this may offer some good top-side opportunities, the general feeling is that it will be a recovery type rally and not a full-on bull market move. A breakout above the top of the wedge (April trend-line) will have focus on dip-buying opportunities on the 4-hr chart. A matured descending wedge with a solid break below 11500 will put us in the sellers' camp.
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EUR/USD Daily Chart (Descending Wedge Topside breakout?)
EUR/USD Weekly Chart (Holding Support well so far)
US Dollar Index Posted back-to-back bearish reversal bars
Looking at the US Dollar Index (DXY) weekly chart, last week was the second of a pair of bearish key-reversals, which is a solid indication that we’ll see follow-through on the downside in the days ahead. The euro largely dominates the index with a weighting of 57%, but broadly speaking currencies look headed towards gaining grown versus the dollar.
US Dollar Index (DXY) Weekly Chart (Double Reversals)
As per IG Client Sentiment, traders are currently long by a slight amount with a long/short ratio of 1.10. Should we see this gauge quickly flip to strongly negative in the very near-term, it will be considered a contrarian indication that the euro is indeed going to continue gaining ground.
EUR/USD IG Client Sentiment
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---Written by Paul Robinson, Market Analyst
You can follow Paul on Twitter at @PaulRobinsonFX
DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.