EUR/USD At Critical Support, Is It A Break Or Bounce?

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

The euro just extended to its key support level at 1.1542.

The euro should have an upswing which shall result in it reaching the range between 1.1680 and 1.1722.

The euro has had a bull sash pattern on the daily chart, thus supporting the notion of a bullish run.

In the past two days, the Euro (UUP, FXE) has garnered steam against the US dollar after it took support from the Fibonacci level at 1.1542. Furthermore, the euro managed to base out at the 1.155 mark which signaled to traders that there currently is positive momentum in the currency. Due to this, I believe the euro shall have an upswing to the range between 1.1680 to 1.1722. Thus, to ascertain the likelihood of this occurring, I shall look at the fundamental news affecting the pair, plus analyze the charts using technical analysis tools.

Fundamental news for the Pair:

  • German Data:
    • Germany’s industrial production levels fell to -0.9% in June against an estimate of -0.5%. Moreover, this was a sizable tumble from the prior month’s level of 2.4%. Furthermore, industrial production excluding energy fell to 0.8% in June whilst the production of capital and consumer goods fell to -0.6% and -1.6%, respectively.
  • British data
    • The UK house prices for three months prior to July rose by 3.3% in comparison to the same period a year ago. Furthermore, the average house price in the United Kingdom rose to a new high of £230,380.
    • Outgoing Bank of England Monetary Policy Committee member Ian McCaffery informed the media that if there was a no deal Brexit then there would be some economic disruption. Moreover, he mentioned that the market ought to brace itself for a few rate hikes in the coming two years.
  • Trade war fiasco:
    • President Trump has threatened to raise tariffs from 10% to 25% on Chinese goods worth $200 billion. The imposition of these duties is due at the end of this month.
    • China has finalized a list of tariffs targeting $16 billion worth of US imports. Moreover, China has allowed the Yuan to devalue which seems to be a tit-for-tat move against the United States. These actions by two of the world's powerhouses reinforces the notion that the Euro is all set for a bullish reversal.
  • US Non-farm payrolls report:
    • The US wages in June came out as analysts had expected. The statistic stood at 2.7% on a year on year basis and 0.3% on a month on month basis. Moreover, the real unemployment rate fell to 7.6% which is the lowest level seen since 2001.

Technical Analysis:

Price History:

EUR/USD Weekly Chart The pair’s weekly chart traded from January 2018 to April 2018 in a box range pattern that was agonizing for traders due to the lack of volatility. However, mid-April the Euro had a breakout from the bottom end which resulted in a tumble of 7.2% in the span of one month.

After that the Euro managed to stabilize once again and commenced trading in a new box range pattern. We see that the box range pattern has currently taken support from the 161.8% level at 1.1542. This pattern illustrates to investors that the Euro has successfully managed to reject the lower price levels, thus, reaffirming my stance that a bullish reversal is on the cards.

Daily Chart:

EUR/USD Daily Chart The pair’s daily chart has had a bullish reversal from a downswing pattern it has been trading in for the prior nine days. The bullish reversal occurred after the Euro formed a Bull Sash pattern which displays the bull’s ability to keep the market moving up into the session. Moreover, it shows that the bulls have gained control of the pair. Additionally, the pattern formed at the 161.8% support level at 1.1542.

On the price target front, I do not expect the Euro to extend its rise beyond the 161.8% resistance level at 1.1722. This is due to this level being a tried and tested resistance zone. The 100% resistance level is at 1.1647 whilst the 127.2% level is at 1.1680.

On the indicator facet, the RSI on the daily chart indicates that the bias is presently tilted to the positive side. This reinforces the notion that the upswing is going to linger on.

The Big Picture:

Overall, I am leaning towards the bulls pushing the Euro to the range between 1.1680 and 1.1722. This is driven by the fact that the technicals fully support an ascent in the currency's value until that point. However, whichever way you decide to trade, do ensure that you utilize 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.