Several factors have helped pressure EUR/USD lower in the past two weeks, with the revival of tax reform hopes, a dovish ECB meeting and sustained confidence of a December FED hike being just a few. This week’s calendar may not be quite as impressive in terms of potential volatility for EUR/USD, but technically the pair provides a bearish bias to suggest further losses if sentiment allows.
EUR/USD has been trending lower since the 1.2092 high in September, and RSI continues to confirm the move lower without yet reaching an oversold level. It was the dovish ECB meeting which provided the fuel to send EUR/USD decisively lower and close beneath the August low. The bearish range expansion seen that day helped confirm a head and shoulders top with a daily close confirmation. That we have since seen compression following the break lower makes EUR/USD of interest for potential short positions. Furthermore, Friday’s candle provided a bearish outside day to suggest a corrective high may have been seen. This also provides a technical level to suggest momentum has changed if a decisive break clears Friday’s high at 1.1690.
If we are to see another leg lower, the support zone between 1.1479 – 1.1510 comes into focus, which also surrounds the psychological round number of 1.1500. Whilst it could aid with a sensible target area, it could also serve as a warning to bears if signs of exhaustive price action appears around this key structural level.
However, whilst the downside could appear more favourable from a technical perspective, it’s also possible the news flows this week could limit the potential downside. Remembering that last week included an FOMC meeting and NFP, yet downside for EUR/USD remained fairly contained, then it’s possible this week’s calendar could struggle to sustain the diverging themes which helped Euro fall from the 2017 highs.
From a tactical viewpoint, bearish setups remain the preferred approach whilst daily momentum favours the bears. As we remain beneath a structural zone of resistance around 1.1687/90, short positions could be considered if bearish momentum persists on lower timeframes. However, if we are to see a decisive break above Friday’s high, then EUR/USD will likely be on the back-burner until directional momentum can be more clearly defined on the daily chart.