EURUSD Weekly Outlook: Continued Plunging? Here’s What To Watch

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

1. Technical Outlook: Accelerating deterioration of support, momentum
2. Fundamental Outlook 1: Market drivers and lessons- a daily breakdown
3. Fundamental Outlook 2: Ukraine, data gap, rate expectations gap all favoring USD over EUR
4. Fundamental Outlook 3. Longer Term Considerations
5. Fundamental Outlook 4: Likely market drivers to watch for the coming week and key questions

EURUSD Weekly Technical Outlook: Accelerating Deterioration On All Fronts

EURUSD Weekly Chart 15 July 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

Key Take-Aways Weekly Chart: Bounce or Key Support Breaking? Next Levels To Watch

Continuing the theme of the past 6 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’s slow grind lower within its descending channel from of the past 3 weeks accelerated decisively, as Ukraine tensions, data, and central bank expectations all turned further in favor of the USD. See our fundamental analysis for details, of which there are many.

The most outstanding change for the worst is the third consecutive penetration of yet another key support level in as many weeks.

Three weeks ago the pair decisively broke through its 200 week EMA around 1.342 As the oldest of our EMAs, such a confirmed breach takes real conviction among traders that the EURUSD is headed lower..

Last week confirmed that downward breakout with a modestly lower weekly close, yet support at the 1.333 level held for the third straight week despite plenty of bearish news from both the Ukraine crisis and the economic data, offering EURUSD bulls hope for an oversold bounce.

However the past week illustrated how poor most momentum and positioning indicators are for timing bounces, and how it pays to stay short as long as the pair remains within DOUBLE BOLLINGER BANDS:. The pair not only took out that 1.333 level, it closed Friday below the next major support level at the 38.2% Fibonacci retracement level of the uptrend of August 2012 – May 2014 at 1.3245, to close around 1.3242.

Here are the details of the key elements of the technical breakdown 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.

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

1. 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.
2. -Violation Of Key Support: As noted above

 

1. -Accelerating Downward Momentum
   1. —All EMAs trending lower except for the longest term, least sensitive 100 and 200 week EMAs, which have flattened. The 20 week EMA (yellow) appear set to cross below the 50 week EMA (red), after the 10 week EMA (blue) crossed below it weeks ago. This would signal more entrenched momentum, as does…
   2. —The pair completes its 10^th straight week in the DOUBLE BOLLINGER BANDS:, and its 4^th straight week of hugging the very bottom of this zone.

 

Likely Trading Range For The Week Ahead: 1.317 – 1.3425.

Looking at both weekly and daily charts for the EURUSD:

• Upside limited to around 1.3425 area, where it would meet resistance from prior three week highs as well as from its 200 week EMA and the upper edge of its descending channel.
• Near-term downside is a bit harder to call. The week’s close at 1.3242 is too close to the 38.2% Fibonacci level of the August uptrend truly broken, so if the Ukraine situation and US data advantage don’t escalate, the pair has a chance for some kind of bounce on profit taking, especially given the crowded short position on the pair.
• However if this level doesn’t hold below this level there is really no significant intermediate term support showing on the weekly EURUSD chart until we hit the lower edge of the descending channel, all the way down around the 1.317 area.