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Long-term price action paints troubling picture for the Euro
To explain the euro’s recent behavior, it is important to provide some historical context. The weekly chart of the EUR/USD (euro-U.S. dollar) shows that a long-term Head-and-Shoulders (H&S) formation, in gestation for more than 12 months, was validated in 2021. The ominous pattern foreshadowed large losses for the common currency and suggested a downside move towards 1.1125 was in the offing. Although it took time to fully materialize, the bearish thesis played out well, with the exchange rate falling decisively toward that zone in the first quarter of 2022.
After reaching the projected H&S target in late January, EUR/USD attempted to rally towards the key 1.1500 psychological mark, but trendline resistance halted its advance and stopped recovery in its tracks, paving the way for the pair to resume the relentless decline that began in May 2021. During the ensuing downswing, EUR/USD briefly collapsed towards the 1.0800 handle, but eventually bounced off a long-term rising trendline to end the quarter coiling around 1.1000.
EUR/USD Weekly Chart
Chart created using TradingView
Bears remain firmly entrenched in the driver’s seat
Although the bear market seems mature, there is no compelling reason to believe that an upturn is around the corner. With price trading below its 200-, 100- and 50-day moving averages and a distinct series of lower highs and lower lows, sellers remain firmly entrenched in the driver’s seat.
Absent any major shifts in sentiment, EUR/USD looks poised to continue a downward trajectory in the coming weeks and months. However, to reassert the downtrend and rejuvenate momentum, prices need to breach confluence support near the cycle low at 1.0805. This breakout, if confirmed, would expose the April 2020 low at 1.0727, followed by the March 2020 low at 1.0635.
On the flip side, if EUR/USD stages a meaningful rebound, gains should be sustained to neutralize the technical damage caused by the merciless sell-off that has transpired over the past 10 months or so. Should this scenario unfold in an orderly fashion, the first hurdle to consider appears at 1.1135 (March 17 swing high). On further strength, the focus shifts up to the 50-day SMA, followed by 1.1360, a dynamic resistance created by a the descending trendline extended off the May 2021 highs.
In any case, for the near-term outlook to improve convincingly, a move atop the 1.1500 handle and the 200-day simple moving average is required. A clean breakout could suggest a broader trend reversal is underway, opening the door for further upside towards the October 2021 peak near 1.1680.
EUR/USD Daily Chart
Chart created using TradingView
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