For The Euro, Is There A Coming “Sell The News” Bounce?

FX Traders’ weekly EURUSD fundamental & technical picture,likely trend, trading range, and drivers

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: Another failed bottoming attempt and implications, likely trading range this week
2. Fundamental Outlook Summary: The recent fundamental drivers strengthening, and what could counter them and lift the pair
3. Fundamental Outlook 1: Daily market movers and lessons learned from them
4. Fundamental Outlook 2: Lessons and likely market movers for the coming week and beyond

EURUSD Weekly Technical Outlook: Friday Breakdown Negates Bottoming Attempt

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

This Week’s Outlook And Likely Trading Range

The big technical insight as that the expected near term bottoming in the EURUSD, which looked on track all the way through Thursday, failed with Friday’s breakdown.

Daily EURUSD Chart August 4 To Present, Weeks of August 18-29 highlighted
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

The pair broke below what had been the week’s support level around the 1.3200 – 1.315 area and made its biggest move of the week, twice the distance of any daily move all week, a roughly 485 pip drop to close at 1.3136.

The break below the weekly trading range and support, after the week had already began with a gap down on the daily charts, is technically damaging. Unless the pair can get back over 1.3200 this week, that level becomes yet another former support point turned into resistance.

The breakdown suggests that bearish strength isn’t exhausted yet. Consider, despite the already crowded EURUSD short positioning, Monday’s gap lower, and the tight Monday to Thursday trading range, all these factors failed to signal a bottoming. Instead, traders lightened up again on EURUSD longs yet again, further crowding an already crowded short position.

As the daily chart above shows, last Friday was the second straight Friday selloff, to close at the week’s lows, after the pair had attempted a bottom in the prior days.

Friday’s breakdown revealed a further degree of capitulation by EURUSD bulls and conviction by EURUSD shorts.

The close at 1.3136 brought the EURUSD down to the next level of support, the lower edge of its descending channel shown in the weekly chart above.

As we discuss in our fundamental analysis, this week’s packed economic calendar’s top two events, the ECB monthly meeting (including rate statement and press conference), and the US monthly jobs reports, both are more likely than not to further undermine the pair. While few expect the ECB to announce new easing yet, many think it could begin preparing markets for that. Meanwhile, US jobs reports for August are expected to continue to show the US adding 200K or more jobs per month, keeping the Fed on its gradual progress towards a rate hike in the coming year. Of course, don’t forget that Russia continues to feed concerns about further economic damage from yet another round of sanctions as it moves from covert to overt invasion of Ukraine.

Likely Range For This Week

The next support level is around 1.3070, the 23.6% Fibonacci retracement of the EURUSD’s downtrend of August 2008 to June 2010. This is the likely bottom end of this week’s trading range if the above two biggest events are EURUSD bearish. If those events turn out to be EURUSD bullish, then the likely highs of the week are either last week’s main support area around 1.32, then the 38.2% Fibonacci retracement line around 1.325

Longer Term EURUSD Outlook

Continuing the theme of the past 7 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 has accelerated decisively in the past two weeks, as Ukraine tensions, bearish 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 fourth consecutive penetration of yet another key support level in as many weeks, this time the 1.3200 level.

Four 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..

Two weeks ago the weekly close confirmed that downward breakout with a plunge that took out support at the 1.333 level, which had held for three weeks despite plenty of bearish news from both the Ukraine crisis and the economic data, offering EURUSD bulls hope for an oversold bounce.