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EUR/USD Technical Highlights:
- EUR/USD is testing the top of channel dating to early this year
- A turn down keeps things status quo, while a breakout can extend the recovery
- ECB on Thursday, so expect volatility and a resolution to this test this week
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The EUR/USD is up against a significant level of resistance via a channel dating to February. It has become a very reliable structure since its formation, and on that will be used as the main guide until it becomes no longer relevant.
The lower high posted during the middle of this month suggests that the Euro is strengthening and could be ready to punch out of the channel. A breakout of the channel will be considered confirmed once price not only crosses the channel but can post a higher-high above 99997 (let’s call it parity).
A move beyond those points should get EUR/USD running higher for at least a little bit, even if only amounts to a recovery rally amidst a broader trend. There are signs in general that suggest the macro trade that has worked so well this year (long dollar, short everything else) is going to correct a bit.
The dollar first topped, then stocks look to have bottomed on CPI, and now bonds look like they may have finished a capitulation phase. This should take the air out of the dollar and put some into other assets for the time-being. This is only considered a recovery trade, and on that it is also seen as at risk of failing with limited warning.
Getting back to the euro, if the channel and higher-high are unable to be achieved then we must continue to respect resistance. A false breakout above the channel line and horizontal level would be reason to stay with a bearish bias.
Overall, the outlook appears to be improving for the euro in the near-term, but again we must respect resistance until broken. There is the ECB meeting on Thursday that could be a significant catalyst to whether EUR/USD makes or breaks, and we indeed may not see the euro even try to make its move until then, Either way, I’m following the price behavior for cues as to what the market wants to do.
EUR/USD Daily Chart
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—Written by Paul Robinson, Market Analyst
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