EURUSD Weekly Forecast June 1, 2014, Technical, Fundamental Analysis: This Week Decides – Breakdown Or

FX Traders’ weekly EURUSD fundamental & technical picture, market drivers, 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

1. Technical Outlook: Near term bullish, medium term neutral. Odds favor a “sell the news” bounce after the ECB’s expected easing steps Thursday. Likely support, resistance levels that limit up, down moves.
2. Fundamental Outlook: Bullish near term as neither ECB easing nor US jobs & related reports are expected to fuel more downtrend. Neutral medium term as fundamentals suggest coming moves likely to remain within recent trading range.
3. Trader Positioning: Also suggests mild bounce
4. Conclusions: Some potentially big drivers but will need major surprises from them to fuel a breakout from recent trading range.

Technical Outlook

This week we again minimize our usual discussion of overall risk appetite per our sample of leading global stock indexes. For the past 4 weeks they haven’t helped us forecast EURUSD moves:

• The EURUSD has ceased tracking these indexes and has been falling for the past 4 weeks as it moves with its bearish specific fundamental drivers, rather than overall risk appetite, and it is likely to continue to do so this week. See the fundamental outlook section below for specifics.  
• Indeed, the leading US and European indexes are moving higher, as increasingly dovish looks from both the Fed and ECB benefit stocks, while the fading expectations for USD rate increases create distinct problems for the ECB, as we discussed in our special report here.

EURUSD Weekly Technical Outlook:  Downtrend Halted By Strong Support Plus Lack Of Further Bearish Fundamentals

EURUSD Weekly Forecast June 1, 2014, Technical, Fundamental Analysis: This Week Decides – Breakdown Or Rebound

EURUSD Weekly Chart October 13, 2013 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.

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

02 May. 31 22.39

Key Take-Aways Weekly Chart: Why EURUSD Trend Change Imminent?

As the weekly chart above shows, the pair is virtually unchanged from last week’s close.

There were no further comments from the ECB this week that further raised easing expectations, nor did US or EU economic data provide any surprises big enough to change expectations about Fed or ECB policy. Thus not surprisingly, last week’s closing support level held, and the pair managed to stabilize, and even close modestly higher for the week.  

While the pair remains in its 16 week trading range, hanging on at the low of that range. It remains at the lower edge if its neutral double Bollinger ® band zone.  With Friday’s close at 1.363, the current support zone around 1.36 -1.355 is holding, buttressed by five layers of converging support:

1. –The round 1.355 figure itself
2. –The green uptrend line dating from mid-2012
3. –The 50% Fibonacci retracement of the downtrend from mid-2011 to mid-2012.
4. –The 38.2% Fibonacci retracement of the bigger downtrend from July 2008 to June 2010
5. –Most importantly, the psychologically critical 50 week (aka 200 day) EMA in the 1.355 zone. For many medium and longer term traders, when something breaks below its 200 day moving average, that’s the time to exit longs and open short positions.

Remember that the entire pullback has been both minor (about 1.8%) and measured, halting at each weekly support level. We’ve seen nothing to suggest the month’s pullback is anything more than a normal technical pullback, fueled by the ECB easing speculation. No one is giving up on the EURUSD uptrend yet, especially with the uninspiring near term USD fundamentals described below.

Given these 5 kinds of converging support elements, we’ll need some seriously bearish surprise to shift sentiment enough so that sellers mount a new challenge to this support.

What would those be? See the Fundamentals section below, where we also discuss why odds instead favor some kind of “sell the rumor buy the news” bounce higher, albeit still within the recent trading range.

Traders have been buying into ECB easing rumors, so barring a big surprise, the pair seems primed for traders to now sell the news, close out the EURUSD shorts and attempt to play the bounce.

As we’ve said before, a confirmed close below 1.35 (we allow for some wiggle room) is our signal that the pair has topped out for now and that the uptrend dating from mid-2012 is over for now.

Actually, the odds won’t favor more downtrend until we get a confirmed move into the DOUBLE BOLLINGER BANDS:, which begins around 1.36. This is a key level for all forex investors, as a new EURUSD downtrend will provide potent fuel for a USD rally against its other counterparts, for reasons we’ve discussed here.

Likely Trading Range This Week

• Downside: If we get that breakdown, then the only question would be whether it’s going to test deeper support around 1.345 -1.34 (where both its 100 and 200 week EMAs reside) or settle into a new flat trading range centered around the 1.355 zone.
• Upside: If neither the ECB nor US data surprises, the odds favor some kind of “buy the news” bounce after the recent downtrend driven by a “sell the rumor” (of ECB easing) impulse. As we see from the weekly chart above, the first likely resistance for the bounce comes around 1.365, 1.37, and then 1.375. Both of the latter two are highs of prior weeks, buttressed by moving averages. The long term EURUSD downtrend line around 1.39 caps any likely bounce for the coming weeks.

Fundamental Outlook: Bearish Influence Of ECB Easing Expectations Spent?

Given the minimal net movement in the pair, it’s clear that nothing over the past week had material lasting influence on the pair. Any examination of last week’s fundamentals and temporary, minor market movers is valuable only to the extent that it offers lessons on what might move the pair in the near or longer term.