EUR/USD: The Fibonacci Resistance Trap Looms Over This Temporary Recovery

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Includes: DEUR, DRR, ERO, EUFX, EUO, FXE, ULE, URR, USDU, UUP
by: Sandeep Singh Ahluwalia

Summary

The EUR/USD is trading around 1.1763 in the third calm day for the financial markets.

Data regarding the Eurozone PMI could not rock the boat.

The technical picture is bullish on the daily chart but this is a very cautious recovery.

The pair’s weekly chart has just completed a morning star pattern with support from the 127.2% and 168.1% Fibonacci levels.

The EUR/USD (UUP, FXE) pair is currently moving higher as it is trading at the 1.1763 mark at the time of writing this article. Moreover, this is the highest level seen for the pair in this year. Thus, in this article, I shall assess the probability of the euro continuing its rise against the US dollar. I say this as I am bullish on the pair rising till the $1.1863 mark, after which I expect a downturn. Thus, to ascertain the likelihood of this occurring, I shall look at the fundamental news affecting the pair, plus analyse the charts using technical analysis tools.

Fundamental news:

  • The EUR/USD pair has had three calm days of trading, which is something that has not characterized the duo in recent times. This is a result of the Italian government finally being able to settle into power. Moreover, the installation of the new government, has calmed down worries of an imminent crisis in this debt-stricken nation.
  • Data relating to the Purchasing Managers' Index for the European service sector came out and was within analysts' expectations. The eurozone PMI stood at 53.8 whilst the projected value was 53.9 thus there is no big change.
  • On the US Dollar’s front, the big elephant in the room remains President Trump’s steel and aluminium tariffs against the EU, Mexico and Canada. Even though the EU has not issued any retaliatory tariffs, we expect the sense of calm to be broken soon as the bloc has announced that it is formulating a retaliatory plan.
  • The value of the US PMI data for May, for the non-manufacturing sector has risen to 58.6. Even though this was positive news, it has not managed to provide any meaningful boost to the greenback.

Technical Analysis:

Daily Chart:

EUR/USD Daily Chart The pair's daily chart, has had a bullish breakout from a three-day box range pattern that aided the euro in reaching the 1.1763 mark. Moreover, the current candle has held the 20-day moving average line, whilst also, taking support from the 38.2% Fibonacci level at 1.722.

Nevertheless, I do not expect the bullish run to extend beyond the 127.2% Fibonacci resistance level at 1.1863. This is due to the candle sizes on the shorter time frames becoming smaller as they rise thus indicating that the bulls are slowly losing steam. Additionally, the 127.2% resistance level is also a long-term candle resistance line.

On the indicator facet, the short-term RSI of the pair is ascending steeply and is just a few points away off the 70 mark. This indicates that the bullish run shall continue temporarily but shall not last long.

The pair has currently taken support from the 38.2% level at 1.1722. The next support level is the 61.8% line at 1.1641, which is also the lower support line for the prior box range pattern. Moreover, the 100% support level is at 1.1509, which is also a long-term candle support line.

Weekly Chart:

EUR/USD Weekly Chart The pair’s weekly chart has had a morning star pattern, which aided the Euro in having a breakout above the 23.6% resistance level at 1.1758. Additionally, the 127.2% Fibonacci line has provided support to the candle patterns for the past three weeks. Furthermore, the first candle of the morning star pattern shows investors that there was a high level of supply, whilst the next candle shows a diminution of this supply. Finally, the current candle proves the bulls have now managed to gain the upper hand.

Price Target:

EUR/USD Price Targets Chart The first price target for the pair is at 1.1789, which is the 100% Fibonacci level. After the pair breaches the 100% resistance level, I anticipate a rise till the 127.2% level at 1.1863. In the current scenario, I don’t expect the pair to rise above the 1.1863 mark, as it is also a long-term candle resistance line.

The big picture:

Overall, I am leaning towards the bulls making the euro rise till the 1.1863 mark. This is fuelled by the fact that the technicals fully support an ascent in the currency’s value till that point after which we shall have a downturn. However, whichever way you decide to trade, do ensure that you utilise trailing stops, as this shall aid in capital preservation.

Good luck trading.

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.