FX Traders’ weekly EURUSD fundamental & technical picture, this week’s market drivers that could change it- the bullish, the bearish and likely EURUSD direction.
The following is a partial summary of the conclusions from the fxempire.com weekly analysts’ meeting in which we cover outlooks for the major pairs for the coming week and beyond.
Summary
- Technical Outlook: Short Term Neutral, Medium Term Bearish Â
- Fundamental Outlook 1: Ukraine Escalation Set To Dominate Markets?
- Fundamental Outlook 2: If Ukraine Calms, EU Data Key
- The Big Question: Ukraine Escalating, And If So, Is It A Game Changer?
The short term technical picture suggested we might see a near term bottoming before the longer term downtrend, suggested by our technical indicators, resumed. Will escalating military conflict accelerate the pairs’ decline?
TECHNICAL OUTLOOK: Overall Risk Appetite Per Leading Global Stock Indexes  Â
We skip this section this week because the modest bounce in risk appetite as reflected by the week’s bounce in the indexes does not help explain the EURUSD’s movements, as the usual positive correlation between the indexes and the EURUSD broke down last week.
Why? Both the indexes and the EURUSD reacted to the same developments in opposite ways. Specifically:
- Stocks were up mostly on a combination of a modest easing geopolitical fears and a ‘bad news is good news’ reaction to poor data worldwide, which had investors anticipating new or at least continued low rates from central banks.
- The EURUSD dropped on continued recognition that the ECB is much more likely to enact EUR-dilutive easing than the Fed, which is either going to keep policy steady or tighten a bit, with rates beginning to increase sometime between late 2014 to late 2015, as well as a belief that economic damage from Ukraine-related sanctions is far from over and will reinforce EU economic weakness and the ECB’s dovish stance.
Thus index movements don’t help us explain EURUSD price action.
EURUSD Weekly Technical Outlook: Short Term Neutral Longer Term Bearish
EURUSD Coming Week Outlook: Bottoming Or New Ukraine Pain A Game Changer?
EURUSD Weekly Chart July 22 2012 to Present
KEY: 10 Week EMA Dark Blue, 20 WEEK EMA Yellow, 50 WEEK EMA Red, 100 WEEK EMA Light Blue, 200 WEEK EMA Violet, DOUBLE BOLLINGER BANDS: Normal 2 Standard Deviations Green, 1 Standard Deviation Orange. Green downtrend line from EURUSD peak of July 2008 to present, green uptrend line from August 2012 to present. White Fibonacci retracement lines for downtrend of August 2008 To June 2010, yellow Fibonacci retracement lines for downtrend of May 2011 To July 2011.
Source: MetaQuotes Software Corp, www.fxempire.com, www.thesensibleguidetoforex.com
01 Aug. 16 21.25
Key Take-Aways Weekly Chart: Bounce or Key Support Breaking? Next Levels To Watch
Continuing the theme of the past 5 weeks, the medium term outlook continues to deteriorate from a variety of technical perspectives, chart patterns, support breakdowns, and strengthening downwards momentum. In addition, the pair continued its slow grind down within its descending channel from May after a 5 week breakout above it.
The most outstanding change for the worst is the second straight weekly close below the last and strongest moving average, the 200 week EMA around 1.342. This second straight weekly close below it, along with a continued drop below it, brings us closer to calling a breakdown of this very significant support level.
As the oldest of our EMAs, such a confirmed breach takes real conviction among traders that the EURUSD is headed lower. The fundamental drivers of that conviction are clear, the poor EU economic data of the past week and continued potential for slowing growth from escalating military and economic sanctions activity. See our fundamental analysis for more on that.
That said, the weekly price action just wasn’t strong enough for us to declare support at the 200 week EMA around 1.342 officially broken yet:
- The EURUSD was essentially flat for the week despite bad data and the threat of more bad news from the Ukraine crisis.
- The close at 1.3399 is close enough to the 1.342 support level to consider this level merely bent but not yet decisively broken.
- The week’s candle is the second indecisive doji in three weeks, during which time the pair has only fallen about 260 pips.
 In sum, one could still make a case that the pair is bottoming, though we would disagree, as both the technical and fundamental medium term picture remains overall bearish, especially in light of continued strong downward momentum on the above weekly chart, as we detail below.
 Here are the details of the key elements of the technical picture on the weekly EURUSD chart.
- 1.       -Bearish Head And Shoulder Pattern Gets Further Confirmation: The past weeks additional declines, after the prior week’s pause (due to a below-forecast US jobs report), confirm the bearish medium term pattern. It’s hardly a classic H&S pattern given the head is dispersed over a few weeks and the somewhat asymmetrical and lopsided shoulders in December 2013 and June 2014 (the June shoulder’s a bit lower).
However the principal behind the H&S pattern applies here. That is, a failed attempt to rally, followed by further declines that suggest the EURUSD’s rally that began in mid-2012 is officially over.
