EURUSD Weekly Outlook: EURUSD Bounce Or Collapse? Here’s What Decides

FX Traders’ weekly EURUSD fundamental & technical outlook, and what makes this week potentially decisive for weeks to come

Summary

1. Technical Outlook: Near term neutral, longer term bearish
2. Fundamental Outlook 1: Prior week’s drivers, lessons
3. Fundamental Outlook 2: Coming week’s drivers, lessons, and what could bring a EURUSD reversal

EURUSD Weekly Technical Outlook: Bearish Momentum But Note That Bullish Hammer Candlestick

EURUSD Weekly Chart September 2, 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

02 Sep. 13 21.15

Key Points

The pair essentially held steady last week as a lack of material news in the short term provided no sustained push lower, while the very strong medium term downward momentum, prevented any meaningful bounce rally. To elaborate:

• As we predicted last week with our neutral short term forecast, the light economic calendar, aided by the mostly unchanged geopolitical landscape (scary potential, but no imminent threats) offered little fuel for additional downtrend. Indeed, the EURUSD’s modest net gain on the week reflected justifiable market indecision ahead of the coming loaded EURUSD event calendar.
• The fact that the pair remains in the extreme lower end of its double Bollinger® band sell zone means that strong downward momentum in the medium term remains, hence our medium term bearish outlook. As we see from the above chart, it limits any sustained upward potential in the absence of some very bullish EURUSD news. We may get some of that this week, see below for why in our fundamental analysis.

Technical Outlook Conclusion: Medium Term Bearish, Short Term Neutral

Given that persistent strong downward momentum backed by the equally persistent fundamentals behind (discussed in prior articles and in our fundamental analysis this week), the coming months should see the pair test lower.

In the short term, if this week’s events provide any excuse for further rallying, this week’s candle is a great big bullish hammer, and offers technical evidence suggesting potential for bullish follow through. The bullish hammer is more significant precisely when it follows a sustained, sharp downtrend like we’ve seen in the past eight weeks.