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Euro Technical Outlook: EUR/USD Bounce Brings Fade Potential

Euro Technical Outlook: EUR/USD Bounce Brings Fade Potential

2020-10-07 15:38:00
Michael Boutros, Strategist
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Euro Technical Price Outlook: EUR/USD Weekly Trade Levels

  • Euro updated technical trade levels & sentiment – Weekly Chart
  • EUR/USD recovery approaches first major test of resistance
  • Key support at 1.1616 – Critical resistance at 1.1823/35
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Euro is attempting a second weekly advance against the US Dollar after rebounding off confluence support into the close of September. The rally is vulnerable however as EUR/USD approaches the first test of resistance and we’re on the lookout for possible exhaustion on a stretch higher. These are the updated targets and invalidation levels that matter on the EUR/USD weekly price chart. Review my latest Strategy Webinar for an in-depth breakdown of this Loonie technical setup and more.

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Euro Price Chart – EUR/USD Weekly

Euro Price Chart - EUR/USD Weekly - Euro vs US Dollar Trade Outlook - Technical Forecast 10-7-2020

Chart Prepared by Michael Boutros, Technical Strategist; EUR/USD on Tradingview

Notes: In last month’s Euro Weekly Price Outlook we noted that the EUR/USD rally was vulnerable as the, “weekly momentum profile highlights the risk for topside exhaustion here while below 1.2005 with a pending RSI support trigger in view.” That high held with a break of the September opening-range lows fueling a decline of more than 3.3% before rebounding off confluence support at the 2016 swing high at 1.1616.

A recovery of more than 1.5% off the lows is now eyeing key resistance at 1.1823/35- a region defined by the 61.8% Fibonacci retracement of the 2018 decline and the yearly high-week reversal close. The recovery may be vulnerable while below this threshold. A break / close below 1.1616 would expose more significant support at the 2019 open / 38.2% retracement at 1.1445/86-an area of interest for possible downside exhaustion IF reached. A topside breach / close above the 1.1835 level is needed to mark resumption towards 1.2005 again.

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Bottom line: The recent Euro recovery is approaching the first major resistance zone and leaves the rally vulnerable here. From at trading standpoint, be on the lookout for topside exhaustion / swing high ahead of 1.1823/35 with a close lower needed to suggest a larger correction is underway. Ultimately, a larger correction may offer more favorable entries closer to uptrend support. Review my latest Euro Price Outlook for a closer look at the near-term EUR/USD technical trade levels.

For a complete breakdown of Michael’s trading strategy, review his Foundations of Technical Analysis series on Building a Trading Strategy

Euro Trader Sentiment – EUR/USD Price Chart

Euro Trader Sentiment - EUR/USD Price Chart - Euro Technical Outlook - Weekly Forecast 10-7-2020
  • A summary of IG Client Sentiment shows traders are net-short EUR/USD - the ratio stands at -1.66 (37.60% of traders are long) – bullish reading
  • Long positions are3.19% higher than yesterday and 0.63% higher from last week
  • Short positions are11.60% lower than yesterday and 0.04% lower from last week
  • We typically take a contrarian view to crowd sentiment, and the fact traders are net-short suggests EUR/USD prices may continue to rise. Yet traders are less net-short than yesterday and compared with last week. Recent changes in sentiment warn that the current EUR/USD price trend may soon reverse lower despite the fact traders remain net-short.
EUR/USD BULLISH
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of clients are net long. of clients are net short.
Change in Longs Shorts OI
Daily -2% 4% 2%
Weekly -27% 24% 5%
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--- Written by Michael Boutros, Technical Strategist with DailyFX

Follow Michael on Twitter @MBForex

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

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