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Euro Weekly Forecast: EUR/USD Range, EUR/JPY Wedge Ahead of ECB

Euro Weekly Forecast: EUR/USD Range, EUR/JPY Wedge Ahead of ECB

2020-01-18 06:00:00
James Stanley, Currency Strategist
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Euro Talking Points:

  • Trends have thus far remained evasive in the single currency in 2020, but next week brings the European Central Bank’s first rate decision in the New Year.
  • The ECB is now headed by a new President in Ms. Christine Lagarde, who will likely look to put her mark on the bank by focusing on fiscal coordination and political integration. This can take some pressure off of the monetary-led approach that’s become commonplace in the bloc with the Draghi-led ECB.
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EUR/USD Ranges as Trends Remain Evasive

For most intents and purposes, it’s been a quiet start to the New Year for the Euro. While last year saw EUR/USD clinging to a down-trend into Q4 trade, last quarter’s range has held so far. A bit of excitement in the month of December, which started to show around Christine Lagarde’s first rate decision at the ECB, lasted into the final trading day of 2019 as EUR/USD pushed up to a fresh four-month-high. But resistance came-in at a very familiar area, taken from around the 1.1212 level on the chart, and price action has since settled and gyrated through the first two weeks of 2020.

EUR/USD BULLISH
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of clients are net long. of clients are net short.
Change in Longs Shorts OI
Daily -14% -5% -12%
Weekly -5% 20% 0%
Current EUR/USD Retail Sentiment
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EUR/USD Four-Hour Price Chart

EURUSD Four-Hour Chart

Chart prepared by James Stanley; EURUSD on Tradingview

ECB on the Docket

The second ECB rate decision led by Ms. Christine Lagarde takes place next week, and the big question around the event is just how forcefully she might further define her intentions atop the bank. She was fairly clear in her first rate decision in December that she wasn’t going to be bound by prior precedent, instead taking on a decisive tone that she would mold and lead the bank in the manner she best saw fit. She also warned against misinterpreting her comments or reading too deeply into what she says, which will be an interesting item to follow given the importance of social media to current market dynamics.

Where this comes of interest for traders is the fact that she may lean heavier on fiscal stimulus and European governments to coordinate initiatives in the effort of removing some of the brute reliance that the bloc has placed on monetary stimulus. This would mark a fairly obvious shift from the Draghi-led ECB and, for FX traders, may bring some volatility into the mix.

On a longer-term basis, this may drive strength back into the currency after the Euro spent much of the past two years in varying forms of sell-off. From the Weekly chart below, the importance of current resistance stands out. This zone, running from 1.1187-1.1212, has held numerous inflections over the past year-plus; most recently that bullish advance that faltered at the end of last year. But – as yet, buyers haven’t relented as indicated by the continuation of higher-lows that’s shown over the past three months.

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EUR/USD Weekly Price Chart

EURUSD Weekly Chart

Chart prepared by James Stanley; EURUSD on Tradingview

On a shorter-term basis, EUR/USD is nearing the weekly close at a key area of support, taken from around 1.1082 which is the 38.2% Fibonacci retracement of the August-October sell-off. On the support side below current price action, the 1.1000 level looms large, after which 1.0950 and 1.0880 become of interest. The resistance side of the coin offers the 1.1145 level which showed intra-day resistance through this week, followed by the big-picture zone at 1.1187-1.1212.

EUR/USD Technical Forecast: Neutral

EUR/USD Daily Price Chart

EURUSD Daily Chart

Chart prepared by James Stanley; EURUSD on Tradingview

EUR/JPY Runs into Wedge Resistance

For traders looking at short-side themes against the single currency, EUR/JPY may offer some attraction. The pair began the week with strength, followed by grind Tuesday-Thursday. Friday, however, brought a strong downside move after price action caught resistance at a bearish trendline projection, which makes up a symmetrical wedge formation.

EUR/JPY Technical Forecast: Bearish

EUR/JPY Daily Price Chart

EURJPY Daily Chart

Chart prepared by James Stanley; EURJPY on Tradingview

--- Written by James Stanley, Strategist for DailyFX.com

Contact and follow James on Twitter: @JStanleyFX

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

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