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Euro Outlook: EUR/USD Breakout Lacks Confirmation Unlike EUR/JPY

Euro Outlook: EUR/USD Breakout Lacks Confirmation Unlike EUR/JPY

Daniel Dubrovsky, Strategist

Euro Technical Forecast Talking Points

  • EUR/USD downside breakout could use more technical confirmation
  • Euro bullish signals may lead to gains against the US Dollar ahead
  • The EUR/JPY downtrend may extend on bearish contrarian signals

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EUR/USDChart Outlook - Neutral

The Euro closed at its lowest against the US Dollar since May 2017 last week, fundamentally thanks to a less-dovish Federal Reserve interest rate cut. This marked a significant achievement for EUR/USD as it cleared the critical psychological barrier between 1.110 and 1.11322. This year, we saw this support hold on multiple occasions as it preceded temporary bounces.

Yet, as is per the usual with technical analysis, confirmation is what helps to solidify either turning points or breakouts. At this point, the Euro could use more for the latter as prices were unable to make it far once below key support. In fact, the currency pair heads into the new week already at the front door of former support which is acting as new resistance.

In addition, last week’s price action left behind a Hammer candlestick which is a sign of indecision. With further upside progress, via a close above 1.1132, this may end up preceding another bounce. So keep an eye on the near-term falling trend lines from the middle of July and June on the daily chart below. For downtrend resumption, watch for a close under 1.1048.

EUR/USD Daily Chart

EURUSD

EUR/USD Chart Created in TradingView

EUR/JPYChart Outlook - Bearish

Against the Japanese Yen however, the Euro is looking increasingly vulnerable. Last week, we saw EUR/JPY close under the January “Flash Crash” low at 118.66. Prices held afterwards just above former highs seen back in July of 2016. Moreover, the dominant downtrend in the currency pair extended from late February as we took out support at 120.00.

This left EUR/JPY facing the 78.6% Fibonacci extension at 118.08. A close under it opens the door to testing 116.64 down the road. On the other hand, if we see prices turn higher there doesn’t seem to be a clear psychological barrier until we are back at the 120 figure. For timely updates on the Euro ahead, you may follow me on Twitter here @ddubrovskyFX.

EUR/JPY Daily Chart

EURJPY Price Chart

EUR/JPY Chart created in TradingView

EUR/JPY Bearish Sentiment Signals

Adding to the downside EUR/JPY technical argument is the psychological risk that traders add exposure to net long positioning. On August 2, IG Client Sentiment showed that about 30% of EUR/JPY traders are net short, 31.6% and 20.2% lower from the previous day and week respectively. This is offering a stronger bearish-contrarian trading bias.

Join me each week on Wednesday’s at 00:00 GMT as I reveal what else trader positioning has to say about prevailing trends in currencies, equities and commodities!

EUR/JPY IG Client Positioning

EURJPY Client Positioning Chart

FX Trading Resources

--- Written by Daniel Dubrovsky, Currency Analyst for DailyFX.com

To contact Daniel, use the comments section below or @ddubrovskyFX on Twitter

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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