EURUSD Coming Week Technical, Fundamental Outlook & Why USD Rising While Rates Fall

Why there’s fundamental and technical evidence to support a bounce this week, and why the pair’s prospects remain firmly bearish. An FX Traders’ weekly EURUSD fundamental & technical picture

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

1. Technical Outlook: Short term neutral, medium term bearish
2. Fundamental Outlook: Neutral to bullish if Ukraine situation stays calm, longer term fundamentals remain bearish, favoring USD gains.
3. Why USD remains resilient despite falling US rates
4. Top questions for EURUSD traders
5. Real Time Sample Trader Positioning: Our sample continues to be a solid guide for what not to do.

TECHNICAL OUTLOOK

First we look at overall risk appetite as portrayed by our sample of global indexes, because the EURUSD has been tracking these fairly well recently.

Overall Risk Appetite Per Weekly Charts Of Leading Global Stock Indexes

EURUSD Coming Week Technical, Fundamental Outlook & Why USD Rising While Rates Fall

Weekly Charts Of Large Cap Global Indexes April 21 2013 – Present, With 10 Week/200 Day EMA In Red: LEFT COLUMN TOP TO BOTTOM: S&P 500, DJ 30, FTSE 100, MIDDLE: CAC 40, DJ EUR 50, DAX 30, RIGHT: HANG SENG, MSCI TAIWAN, NIKKEI 225

Key For S&P 500, DJ EUR 50, Nikkei 225 Weekly Chart: 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.

Source: MetaQuotes Software Corp, www.fxempire.com, www.thesensibleguidetoforex.com

06 Aug. 09 21.42

Key Take-Aways Geopolitically Driven Risk Aversion Adds Bearish Context

The pullback in global indexes, and the implied risk aversion, continues. It has now officially reached the US indexes as they log their second straight week in their double Bollinger® band neutral zone. It could have been worse. For example, the S&P 500 would likely have closed the week much lower, and below key support at 1900, if Russia had not announced an end to military “exercises” on Ukraine’s border. 

The risk aversion driving global markets has caused some kept the USD up despite falling treasury yields, as investors’ focus on safety rather than yield. See our fundamental analysis for more on that.

EURUSD Weekly Technical Outlook

 

EURUSD Weekly Chart July 15 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

07 Aug. 09 21.57

Key Take-Aways Weekly Chart: Short Term Bottoming, Medium Term Remains Bearish

Continuing from last week, 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.

That said, support at the 200 week EMA continues to hold and has slowed the decline to the point where we may have a near term bottoming, particularly if the fundamental driver behind the recent decline – the Ukraine situation – continues to ease. Here are the details.

1. 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.

Note the specific elements of the Head and Shoulders Topping Pattern:

1. –We’ve a temporarily successful bounce off late January lows and drive a to new highs from December 2013 to March 2014
2. –A pullback that bottoms in mid-June
3. –A failed rally that tops out in early July, which, significantly, topped at resistance created by the medium term uptrend line dating back to June 2012, which proved its strength by resisting 4 straight weeks of tests. The current move lower has created a new series of lower lows and lower highs, aka a downtrend. The technical evidence of the new downtrend also includes violation of key support as detailed below.
4. -Violation Of Key Support: Over the past 4 weeks the pair has broken through no less than 3 strong support levels, within which were 5 key technical support indicators:
   1. –1.3575 area, which also includes the term 38.2% Fib retracement of the long term downtrend beginning August 2008 – June 2010 (white).
   2. –13560 zone, which also includes the 50% Fib retracement of the medium term downtrend from May – July 2011 (yellow), and the 50 week (200 day) EMA (red)
   3. –The 1.3455 area, which includes the 100 Week EMA (turquoise)
   4. –The 1.3400 support area, which includes the very significant 200 Week EMA (violet), is closer to breaking. Last week it held, thanks to the weaker than expected US NFP and unemployment reports (and thus reduced USD rate hike speculation). This week it bent further but ultimately held, again thanks to some positive Friday news, the end of Russian military exercises on Ukraine’s border.
   5. -Accelerating Downward Momentum
      1. —All EMAs trending lower except for the longest term, least sensitive 100 and 200 week EMAs, which have flattened. The 10 and 20 week EMAs (red and yellow) are close to crossing below the 50 week EMA (red), which would signal more entrenched momentum, as does…
      2. —The pair completes its 9^th straight week in the DOUBLE BOLLINGER BANDS, and its 3^rd straight week of hugging the very bottom of this zone.
      3. Remains In The Middle Of Its Descending Channel (pink): NB: we’ve widened that descending channel compared to last week, in order to better reflect the true price range and downward slope, and allow for normal counter moves like we saw in June.