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EUR/USD Weekly Technical Outlook: Strong Euro Thesis Growing Legs

EUR/USD Weekly Technical Outlook: Strong Euro Thesis Growing Legs

What's on this page

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

To see our intermediate-term fundamental and technical perspective on EUR/USD, check out our just released DailyFX Q3 Euro Forecast.

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.

Gotten a little off track? Check out these 4 ideas to help rebuild your confidence.

EUR/USD Daily Chart (Descending Wedge Topside breakout?)

EUR/USD daily chart, descending wedge looking to break higher

EUR/USD Weekly Chart (Holding Support well so far)

EUR/USD Weekly Chart, holding long-term support well

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)

US Dollar Index Weekly Chart posting second bearish weekly reversal bar

EUR/USD Sentiment

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

EUR/USD IG Client Sentiment

Helpful Resources for Forex Traders

Whether you are a new or experienced trader, we have several resources available to help you; indicator for tracking trader sentiment, quarterly trading forecasts, analytical and educational webinars held daily, trading guides to help you improve trading performance, and one specifically for those who are new to forex.

---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.