Forex Trading Library

EURUSD – Where to from here?

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It was only a month ago when we wrote about the too optimistic projections of the markets at large regarding EURUSD reaching parity. To be precise, in early March, 2015 we published our analysis “How low can the Euro go?” where, we showcased that the bearish decline is likely to stall as the single currency heads towards a corrective rally. Indeed, we couldn’t be proven more right as price action reached the 1.06241 level only to reverse with a strong bullish candlestick on the monthly chart.

The Euro, which only until the past few weeks remained the trader’s preferred currency to short seems to have indeed squeezed out the bears from the market going by the price action, especially this week.

Now that the Euro has shown a strong reversal from 1.06241, the obvious question that arises is where we expect the Euro to trade within the near term.

It would perhaps be best to start with the monthly charts.

Of immediate attention is the first level at 1.1725 through 1.1902. Any upside gains is likely to see the Euro target this level. Any retracement could see price action stalling near 1.0983 which could then see price push higher. On a break above 1.1902, EURUSD could turn seriously bullish, targeting 1.23028. However, it would be a long shot to expect price to reach to 1.23 levels at this point in time. However, with changing fundamentals and market sentiment, we remain open to the idea anyways.

EURUSD - Monthly Technical Analysis, May 2015
EURUSD – Monthly Technical Analysis, May 2015

In the immediate short term, we do expect to see price dip lower. Looking at the US Dollar Index, the daily charts show that price has broken a key support level at 95.5 and this break was sharp and swift within two daily candles. This is perhaps our biggest clue into charting the future course of the Euro in the near term.

We do expect to see the US Dollar Index retrace back to test the broken support at 95.5 for resistance, which should ideally confirm the continuation of the correction in the Dollar Index, which supports and adds weight to our Euro rally conviction.

To the downside, there is a large scope for the US Dollar index to decline, with the next major support coming in at 91.57 or 95.15 (rounded off). As long as price trades along lower, the Euro can be expected to strengthen accordingly.

The daily chart for EURUSD shows the broken resistance at 1.09708 which also marks a break out from the medium term falling trend line. There was a brief retest albeit lower to 1.055, but price action managed to reverse from these lows and pushed higher. We expect the current rally to potentially hit resistance near 1.12845 through 1.1475 (although this target looks a bit far fetched for now) before the currency could decline to retest 1.09708. A successful retest will confirm the monthly views with a target to 1.1475 and above.

EURUSD Daily Charts, 01/05/2015
EURUSD Daily Charts, 01/05/2015

EURUSD – In Summary

  • Monthly/Medium term views, point to a season of correction to the bearish decline in EURUSD
  • 1.09708 through 1.0983 is the support level to watch. If this support holds, our bullish convictions on the EURUSD will be validated
  • To the upside, the next resistance levels to watch would be 1.12845, 1.148 and 1.1902 and 1.20018 (unfilled gap)
  • 1.08257 is the line in the sand. If this support turns to resistance, we expect EURUSD to continue its declines with the initial downside targeting 1.048, the March 13th lows
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