What's In Store For The EUR/USD

by: Sandeep Singh Ahluwalia

The Euro ascended to the projected level of 1.1722.

US average hourly earnings grew by 0.4% on a month on month basis.

The European economy grew at an annualized GDP rate of 2.1% which was lower than what analysts had projected.

The technical picture for the Euro looks bleak, all thanks to an evening star candle pattern.

In my last article, I was bullish on the euro (EUO, FXE) as I expected it to rise against the US dollar (UUP) till the 1.1722 mark. This came true as the euro rose against the US dollar, which resulted in it reaching the 1.1735-mark last week. Hence, in this article, I shall ascertain the possibility of the euro falling against the US dollar till the 1.1403 mark, as I am bearish on the pair. Thus, to establish the likelihood of this occurring, I shall look at the fundamental news affecting the pair whilst also analyzing the charts using technical analysis tools.

Fundamental news:

  • Non-Farm Payrolls report:
    • The Non-Farm Payrolls report showed an impressive increase in overall statistics. The average hourly earnings grew by 0.4% on a month on month basis and 2.9% on a yearly basis. Moreover, the increase in hourly earnings surpassed estimates as analysts had it pegged at 0.3% on a monthly basis and 2.7% on a yearly basis. Furthermore, the number of people employed, excluding workers from the farming industry rose to 201,000 against a prior value of 147,000. The statistic outperformed expectations as analysts had it pegged at 191,000.
    • The unemployment rate remained unchanged at 3.9% whilst the average weekly hours came in at 34.5 which is same as the prior month’s value. Moreover, the participation rate fell to 62.7% from a prior value of 62.9%.
  • Retail Sales report:
    • American retail sales for July were positive as the statistic rose to 0.5%. Moreover, the retail core sales rose to 0.6%, whilst, the control group sales ascended to 0.5%. The value of the control group sales is regarded as the most important as it has highest level of impact on price action in the forex markets.
  • European statistics:
    • The European economy grew at an annualized GDP rate of 2.1% which was lower than what analysts had predicted, as they had it pegged at 2.2%. The reason the GDP rate fell is due to a reduction in the level of exports and an increase in the level of imports.
    • German industrial production levels for July fell to -1.1%, which is lower than the forecasted level of 0.2%. Moreover, Germany’s export level fell to -0.9%, whilst, the import level rose to 2.8% against an anticipated value of 0.2%. Lastly, Germany’s trade balance stood at €15.8 billion, which was lower than the expected value of €19.3 billion.
  • Switzerland data:
    • Switzerland statistics for the second quarter came out positive as the economy grew at a rate of 3.4%, which was far better than the expected level of 2.4%. Moreover, the unemployment rate fell to a low of 2.6% which was in line with analyst’s estimates.

Technical analysis:

Daily chart:

EUR/USD Daily Chart The pair’s daily chart indicates that the euro shall be having a bearish reversal from the box range pattern it has been trading in for the prior six days. I expect the bearish reversal to occur due to the euro forming an evening star pattern. The green candle in the pattern indicates to traders that the bullish trend is in force. However, the next candle’s real body warns us that the bullish momentum is actually weakening. This is then confirmed by the last bearish candle which shows traders that the bullish rally has stalled. Additionally, the pattern formed at the 161.8% resistance level at 1.1637.

On the price target front, I do not expect the euro to tumble below the 100% support level at 1.1403. This is due to this level being a long-term support zone. However, if it does breach this support level then the 127.2% support level is at 1.1314.

Weekly chart:

EUR/USD Weekly Chart The pair’s weekly chart indicates that the euro shall have a bearish continuation in the coming weeks. This is due to the presence of a shooting star in the prior week, which was followed through by a bearish candle giving confirmation to the shooting star pattern. This pattern psychology visually displays a session in which the pair rallied and then failed to hold onto the higher levels. I expect the euro to fall to the 78.6% level at 1.1389. However, if it does manage to breach the said level then I do not expect the fall to go beyond the 100% level at 1.1294.

The Big Picture:

Overall, I am leaning towards the bears pushing the euro to the range between 1. 1403 and 1.1314. This is driven by the fact that the technicals fully support a descent 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.