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EUR/USD Grasps for Support – Has the Euro Topped?

EUR/USD Grasps for Support – Has the Euro Topped?

James Stanley, Senior Strategist

EUR/USD, Euro Talking Points:

  • Last week produced a strong breakout in EUR/USD but that move has so far stalled this week, with a major level coming into play at 1.0350.
  • The Euro is 57.6% of DXY so for USD-strength scenarios, EUR/USD weakness will likely be a needed component. So, if EUR/USD has set a short-term top we’ve likely seen a short-term bottom in the USD/DXY.
  • The analysis contained in article relies on price action and chart formations. To learn more about price action or chart patterns, check out our DailyFX Education section.

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Trends take time, and healthy trends can last through multiple phases or ‘mini trends’ along the way. But, after a while, with enough imbalance, even the strongest of trends are prone to pullback. And that’s what we’ve been watching take place in EUR/USD.

I had written about this in October as the brutal sell-off in EUR/USD was finally starting to show early tendencies of a possible pullback to the bearish trend, at least a short-term one. EUR/USD bears were unable to evoke a test of the .9500 psychological level and it was a point of prior resistance-turned-support that came into play in late-September. This plots at the .9594 level and it was tested over a three-day-period in late-September, which led into a ramp of higher-lows in the month of October which eventually led to a breakout to fresh short-term highs in early-November.

But, the pace of the decline leading into that bounce was notable, especially considering the fact that we’re looking at the two largest currencies in the world between the Euro and the US Dollar.

EUR/USD Monthly Chart


Chart prepared by James Stanley; EURUSD on Tradingview

EUR/USD Weekly

The bearish trend in EUR/USD took on an entirely new life in February. This is when Russia invaded Ukraine and this brought some pretty considerable uncertainty to an already vulnerable situation in Europe, where slow growth was facing rising inflation, putting the European Central Bank in a more difficult position regarding policy.

That fear is what helped to drive EUR/USD below the parity handle but, arguably, the 1.0350 level put up a better fight of support than what showed at parity later in the summer. The price of 1.0350 was the swing low in 2017 and this came back into the picture in the month of May, leading to a 400 pip bounce. It held support again in June but brought a more meager bounce, leading to the build of a descending triangle formation that breached in July as prices purged down for a parity test.

And when price action bounced from parity – it found resistance right at that same 1.0350 level. That brought sellers back into the equation and then parity was broken a few weeks later, leading to that eventual test of the .9594 level.

EUR/USD Weekly Chart


Chart prepared by James Stanley; EURUSD on Tradingview

EUR/USD Daily Chart

The price of 1.0350 came back into the picture last Friday. I started looking at bullish setups in EUR/USD late last month, largely on the basis of a build of higher-lows. And given how prolonged the trend had become, there were likely stops sitting above round numbers like .9900, .9950 and parity. And when price breached those levels, triggering stops on shorts, that led to more breakout as demand increased.

And that seems somewhat similar to what happened last week, when the bullish breakout in EUR/USD extended all the way into the 1.0350 level.

Monday saw a quick reaction at that level with price pulling back to a key Fibonacci level, as the 38.2 retracement of the February-September move plotted at 1.0282. That helped to hold the lows which led to a breakout attempt on Tuesday. That breakout fell flat with an extended wick on the daily chart helping to highlight that reversal theme. And since then – we’ve had a continuation of lower-highs; but bears haven’t yet been able to push a lasting break-below the 1.0350 level.

EUR/USD Daily Price Chart


Chart prepared by James Stanley; EURUSD on Tradingview

EUR/USD Strategy

At this point, the key takeaway is that sellers haven’t yet been able to re-take control. They had an open door for such yesterday but they didn’t walk through it. With that said, however, bulls haven’t exactly done much with the 1.0350 support hold yet either, and the compression we’ve seen this week could be an early sign of a turn.

But, the level of note at this point appears to be that 1.0282 Fibonacci level as this has held two separate support tests which then led into a higher-low. A breach of the higher-low at 1.0303 opens the door for a re-test of the Fibonacci level, and a breach of that opens the door for a move down to 1.0250. With that, we’d then be looking at a fresh weekly low, and it’ll look more likely that EUR/USD has set a short-term top at that point, with focus then moving to next support at 1.0175-1.0198 and the 1.0090.

Alternatively – and this is largely due to the lack of response from bears so far but, if we do see a failure to breach down, the next push up to a fresh high could be of interest for swing-fades. The 1.0500 psychological level sits just above this week’s high and if we see reaction there, it could be early indication of lacking demand at a key spot on the chart.

EUR/USD Two-Hour Price Chart


Chart prepared by James Stanley; EURUSD on Tradingview

--- Written by James Stanley, Senior Strategist, & Head of DailyFX Education

Contact and follow James on Twitter: @JStanleyFX

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