Key Points:
- Price action reaches key reversal zone.
- RSI and Stochastic Oscillators oversold.
- Expect a short term retracement from the lower channel constraint.
The EUR/USD has seen some sharp volatility over the past few days as the pair has largely been beset by strong capital flows back towards the US dollar. This swing has seen the euro post some sharp losses over the previous few sessions and seen the currency pair reaching lows around the 1.0772 mark. However, price action may be getting ready to rebound in the near term given that the par has just entered a relatively strong zone of resistance.
In particular, the daily chart demonstrates the crossroads that the pair is currently facing with price action having reached the reversal zone around the 1.0790 mark. It will remain to be seen if the pair can rebound from this position but there are some surprisingly suggestive indicators appearing on the daily chart. A cursory review of the daily chart shows the RSI and Stochastic Oscillators firmly within oversold territory.
Additionally, price action is now abutting against the bottom of the medium term descending channel which seems to suggest that the pair may be in for a near term rebound. In fact, when coupled with the oversold Oscillator’s, this would appear to be the probable scenario moving forward. Subsequently, a retracement would likely see price climb back towards the 1.0960 mark whilst still remaining depressed under the 1.10 handle. At this stage, any further rallies beyond that point are likely to be capped by the descending trend line a break of which would be relatively unlikely given the ongoing resurgence towards the USD.
However, there are some looming fundamental events which could provide some fuel to the embattled pair. A strong result from this week’s Eurozone GDP and CPI figures could provide some fuel for a rally back above the 1.10 handle. However, given the lacklustre GDP forecast of 0.3% q/q it seems relatively unlikely that any robust result will appear. In contrast, the wide range of US data, due out this week, is highly likely to fuel a continuing trend of greenback strength.
Ultimately, the pair is heading for a short term retracement given the increasing pressures upon the Oscillators. However, the fundamental outlook dictates that any such gain will be short term at best before the pair recommences its incessant decline. Subsequently, watch for a bounce but don’t get caught on the wrong side of the trade when it turns around later in the week.