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Should You Prepare To Short EUR/USD?

Jul. 15, 2017 7:48 AM ETFXE, EUO, ERO-OLD, DRR, ULE, EUFX, URR
Splendid Exchange profile picture
Splendid Exchange


  • EUR/USD is approaching an upper bound of 2.5-year trading range.
  • There is a bearish divergence between EUR/USD and 2-year yield spreads.
  • Eurozone bank stress is still an issue.

Technical Picture

First and foremost, I should say that the trend in EUR/USD is still bullish. On a purely technical basis, long positions are preferable as long as the exchange rate remains above the 1.1140-1.1120 area. If euro can break above 1.1500, then one can expect the upside to extend towards 1.1590, 1.1615, 1.1720, 1.1820 and 1.1860. However, I believe that a more likely scenario would be either a false break above 1.1500 followed by a correction or consolidation followed by a moderate retracement. Targets are 1.1300-1.1290, 1.1215-1.1200 and 1.1120 and 1.0900 in extension.

EURUSD Technicals

Source: Trading View, personal analysis

Resistance at 1.1500 is a very strong one. It is the upper bound of a 2.5-year trading range. Euro has repeatedly failed to break above it (see the chart above – notice failed attempts in August 2015, in October 2015, then in April and May 2016). Furthermore, a bearish divergence in the relative strength index (RSI) seems to be forming on a daily chart and RSI is actually very close to breaking below its own upward sloping trend line from June 20, 2017.

Fundamental Picture

There is so much information on fundamental analysis in EUR/USD that it is becoming extremely difficult to discern important trends from trivial developments. Noise is all over and one needs to stay focused and concentrate on critical issues that actually make sense. I decided to show you just three charts that in my opinion best illustrate the evolving bearish divergence in EUR/USD.

Divergent Monetary Policy

Monetary Policy

Source: ECB, FED, investing.com, personal calculations

In remarks delivered to the U.S. House Financial Services Committee, Janet Yellen reiterated that the gradual rate hike outlook stays in place. At the same time, Mario Draghi, the head of the European Central Bank, has recently played down speculation that ECB intends to

This article was written by

Splendid Exchange profile picture
I trade commodities and high-yielding currencies. Fundamental analysis - 95%. Technical analysis - 5%.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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