Euro has rallied more than 1.5% off the yearly lows against the US Dollar with the late-May advance now testing a key near-term resistance zone. These are the updated targets and invalidation levels that matter on the EUR/USD charts heading into the European Central Bank interest rate decision tomorrow. Review this week’s Strategy Webinar for an in-depth breakdown of this setup and more.
EUR/USD Daily Price Chart
Technical Outlook: In last month’s EUR/USD Weekly Price Outlook we noted that Euro had“responded to multi-year slope support and we’re looking for signs of basing in price action with a close above channel resistance needed to clear the way.” The subsequent advance is now testing a critical pivot zone at 1.1300/17– a region defined by the November 2016 high, the August 2018 low, the April high-day close and the 61.8% retracement of the March decline. Note that basic trendline resistance extending off the yearly highs also converges on this zone and further highlights the technical significance of this threshold.
Daily support rests at the median-line with broader bearish invalidation now raised to 1.1182/86. A topside breach / close above this zone is needed to fuel the next leg higher with such a scenario targeting the 61.8% retracement of the yearly range at 1.1393.
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EUR/USD 120min Price Chart
Notes: A closer look at price action shows Euro trading within the confines of an ascending pitchfork formation extending off the May lows with the 75% line converging on the 1.1300/17 zone over the next few days. Initial support rests at 1.1265 backed by the 25% line around ~1.1240 and the lower parallel / May open at 1.1215 – both areas of interest for possible exhaustion / long-entries on a pullback. A topside breach keeps the focus on the upper parallel / 78.6% retracement at 1.1374.
Bottom line: The immediate Euro price advance may be vulnerable while below 1.1317heading into the ECB tomorrow. From a trading standpoint, a good spot to reduce long-exposure / raise protective stops – look for downside exhaustion / fade weakness on a pullback into the lower parallels with a breach / close above this region needed to mark resumption of the late-May breakout. IF price pushes higher and fails tomorrow, a larger setback towards the lower bounds of this formation may offer some near-term opportunities- stay nimble.
For a complete breakdown of Michael’s trading strategy, review his Foundations of Technical Analysis series on Building a Trading Strategy
EUR/USD Trader Sentiment
- A summary of IG Client Sentiment shows traders are net-short EUR/USD – the ratio stands at -1.17 (46.2% of traders are long) – weak bullish reading
- Long positions are 5.4% lower than yesterday and 28.0% lower from last week
- Short positions are 4.2% higher than yesterday and 28.2% higher from last week
- We typically take a contrarian view to crowd sentiment, and the fact traders are net-short suggests EUR/USD prices may continue to rise. Traders are further net-short than yesterday & last week, and the combination of current positioning and recent changes gives us a stronger EURUSD-bullish contrarian trading bias from a sentiment standpoint.
See how shifts in EUR/USD retail positioning are impacting trend- Learn more about sentiment!
Relevant Euro / US Data Releases
Active Trade Setups
– Written by Michael Boutros, Currency Strategist with DailyFX
Follow Michael on Twitter @MBForex