EURUSD Weekly Outlook: Has The Big Reversal Started? 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 fxempire.com ’ meeting in which we cover outlooks for the major pairs for the coming week and beyond.

Summary

1. Technical Outlook: Medium term per weekly EURUSD charts neutral, short term bearish. Deeper tests of support likely this week but need close below 1.35 before calling this a topping out
2. Fundamental Outlook: Neutral near and medium term, as bullish, bearish forces remain in equilibrium.  Bearish longer term due to expected divergence in direction of Fed and ECB policy, economic performance
3. Last week’s only meaningful price mover was the ECB’s hint of June easing. Yellen’s dovish remarks were ignored as the pair actually fell that day.
4. Longer Term Game Changer 1: A spike in US 30 year T-bond rates bears watching. If it becomes a trend, that would be a game changer as the USD has been undermined by persistent low rates.
5. Longer Term Game Changer 2: Markets stop seeing European stocks, bonds as better value than those of US, undermining EUR demand.

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

This week we minimize our usual discussion of overall risk appetite per our sample of leading global stock indexes, because the EURUSD has not been tracking these indexes and overall risk appetite for the past weeks, and it is likely to continue to do so this week, for reasons we’ll discuss below.

We’ll just note that the medium term technical outlook for the US and European indexes per their weekly charts remains bullish, and thus supportive for the pair. The near term outlook per their daily charts is neutral. For the near term that’s irrelevant, as the pair is now moving mostly on its own fundamentals, discussed below.

EURUSD Weekly Technical Outlook: Short Term Bearish, Medium Term Neutral

EURUSD Weekly Outlook: Has The Big Reversal Started? Here’s What To Watch

EURUSD Weekly Chart July 2012 – 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

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

01 May. 10 22.10

Key Take-Aways Weekly Chart: Deeper Tests Of Support Likely This Week

–Momentum has shifted from bullish to neutral as price is now firmly in the neutral zone of its double Bollinger®bands

–The failed test of 1.40 resistance and key reversal to close near the bottom of its weekly trading range (its lowest in 4 weeks) suggests that the coming week should see a test of deeper support to the 1.37 -1.365 area

–Note how the pair closed back under former support of its long term downtrend line (green) dating back to mid-2008 and 2011, as one can see on a EURUSD monthly chart. We watch for further weekly closes under this new resistance line over the coming weeks to to confirm the long term downtrend.

The weekly EURUSD charts’ picture of medium and long term price action shows weakening upward momentum and resistance holding in the 1.39 area, buttressed by Draghi’s dovish comments from last Thursday’s press conference. Yellen’s remarks Wednesday about recent poor US housing data also had a dovish tinge, but it’s only the ECB that is moving towards further easing.

While the pair remains in its 13 week trading range, the technical bias is towards tests of deeper support around 1.365. If that breaks, the next big support is around 1.36 -1.355, buttressed by triple layers of support

–The green uptrend line dating from mid-2012

–Two Fibonacci retracements:

—-The 50% Fibonacci retracement of the downtrend from mid-2011 to mid-2012.

—-The 38.2% Fibonacci retracement of the bigger downtrend from July 2008 to June 2010

See the EURUSD monthly chart below for context.

 

KEY: 10 Month EMA Dark Blue, 20 Month EMA Yellow, 50 Month EMA Red, 100 MonthEMA Light Blue, 200 Month EMA Violet, DOUBLE BOLLINGER BANDS: Normal 2 Standard Deviations Green, 1 Standard Deviation Orange. Gold Fib retracement lines of downtrend from May 2011- July 2012, White Fib retracement lines of downtrend from July 2008-June 2010.

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