EURUSD opens neutral as bearish risk still lingers

EURUSD has been silent near Friday’s low of 1.0900 during the early European trading hours on Monday. Previously, the pair got rejected near the 1.0730 territory, unable to climb back above the descending trendline, which is the upper boundary of the 2008 – 2020 bearish channel, raising fears that the series of lower lows could see further extension.

After some period of consolidation, the 20- and 50-day simple moving averages (SMAs) posted a bearish cross, endorsing the negative trend in the market. The momentum indicators are also sending discouraging signals. Despite the bounce off the oversold territory, the RSI has yet to confirm higher highs. Likewise, the MACD although moving with weaker negative momentum, is still below its red signal line and well below zero, while the Stochastics are reversing southwards again.

Looking for support levels, the 1.0850 region could come first into view if selling pressures resurface. A decisive close below that bar may initially take a breather near the 1.0780 level before heading for the 2020 low of 1.0636. Moving lower, the 1.0500 mark could next attempt to add some footing, preventing any declines towards the 2016 bottom of 1.0339.

On the upside, there are several obstacles which the bulls need to breach before they claim victory. The descending trendline at 1.1070 and the 1.1100 mark, where the 20-day SMA is currently placed, could immediately halt any bullish actions. If not, the next stop could be the 1.1180 area, which includes the 61.8% Fibonacci retracement of the 1.0636 – 1.2348 upleg and the dashed descending line drawn from May 2021. Higher, the focus will fall on the 50-day SMA at 1.1253, and if this proves easy to clear as well, the bulls could then attempt to brighten the short-term outlook above the tentative downward-sloping trendline at 1.1370 and the 1.1400 psychological level.

Nevertheless, some caution could remain in place unless the pair shapes a bullish structure above its previous high of 1.1492 and, more importantly, beyond the 200-day SMA.In brief, EURUSD is expected to behave neutral-to-bearish in the short term. A successful step above 1.1100 could motivate additional buying actions, while a drop below 1.0850 could result in further depreciation.

About the author

Christina Parthenidou

Christina joined the XM investment research department in May 2017. She holds a master degree in Economics and Business from the Erasmus University Rotterdam with a specialization in International economics. Previously, she earned a bachelor of science in Economics from the University of Cyprus. Apart from foreign exchange markets, her research interests include the impact of International trade on labour markets and product development.

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