Euro Technical Forecast Talking Points:
- An intra-week reversal for the Euro broadly this past week held back a clear break – bullish or bearish
- EURUSD has closed this past week at the middle of the 4-month range and EUVIX hit a 7-month low
- While EURJPY may appeal for breakout pressure, EURCHF and EURGBP are more market aligned
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Technical Forecast for Euro: Neutral
While many have bemoaned the lack of conviction from the Dollar and British Pound lately, I would argue that the Euro is the most listless of the major currencies. As many retail traders are seeking out volatility in all its forms wherever they can find it, this immediately discourages any interest in the currency and its crosses. However, the limited promise of enormous breakouts or tentative trends from this benchmark is far better alignment to underlying market conditions that are marked by the same range (or ‘congestion’) based criteria. Consider EURUSD and the other Euro crosses from the prevailing market conditions perspective and some interesting technical patterns start to arise.
First and foremost, we start with the most liquid ‘asset’ in the world. EURUSD is very indicative of the global financial condition. With this pair, we have a multi-year descending trend channel that is showing progress on a larger scale (like a weekly chart), but it is difficult to appreciate when simply holding to a daily or shorter time frame. Just in the past few months, we have had a few short-lived runs that have traversed the channel, but we ended this past week in the middle of the defined range. In fact, Friday was bouncing on the 50% Fib (an honorary Fib as it isn’t actually part of the sequence) of the October to November range around 1.1030. With the most established technical boundaries out to 1.1200 and down to 1.0900, it would take a serious market event to get to – much less through – these levels; so follow interim technical cues.
Chart of EURUSD with 200-Day Moving Average (Daily)
Chart created with the IG Trading Platform
Taking a look at the more immediate levels that we will more likely come into contact with over the coming week on EURUSD, it would seem that we start off the period within a tighter range of approximately 100 pips. To the upside, we have a two week range high with a modest level of precedence at 1.1100. If the market were supplied with even a moderate level of charge, it could readily break above the resistance. Alternatively, the support around 1.0995 is the 61.8% Fib of the aforementioned October to November climb but its price-based technical tests offer less weight. That may make it easier to break without a strong momentum.
Chart of EURUSD (4-Hour)
Chart created with the IG Trading Platform
Taking a look at the Euro without the Dollar tethered to skew its activity level, we find that the second most liquid currency is perhaps even more restrained than the Greenback itself. Below is an equally-weighted Euro index with a very obvious consolidating range. To build upon this picture, we have the Euro volatility index from the CME below it that shows the lowest level of implied volatility since April – which makes it the second lowest reading since the series inception back in 2015. In short, it is quiet on the big picture time frame. Too quiet. This will eventually breakout, but the probability of doing so just over the coming week is low.
Chart of Equally-Weighted Euro Index and Euro Volatility Index Below (Daily)
Chart created with the TradingView Charting Platform
Among the major Euro-based crosses, one of the most impressive pictures to behold is EURGBP. This pair has run through an enormous bear trend of 5.8 percent just in the past month and 9.2 percent over the past three months. That is particular impressive for this cross, but should we expect that tempo to persist? We are building a range just over the past three to four weeks that looks like it is prone to a break. A move above 0.8600 would seem to clear the lowest technical hurdle to open up a turn to a very large range. A break below 0.8500 would represent the drop below a multi-year trendline support. Both would insinuate big moves to follow, but market conditions are not particularly conducive to that kind of follow through – particularly not for anything Pound-based. Eye this pair with caution.
Chart of EURGBP with 50-Day and 20-Day Moving Averages (Daily)
Chart created with the IG Trading Platform
A little more reasonable a cross is the potential for a breakout from EURJPY. While the daily chart is interesting for a larger range, the four-hour better illustrates more immediate boundaries that are more likely to come under pressure within a week. A 120.50 to 119.75 range is not particularly wide and additional technical levels after these milestones come up soon after, but this is more inline with the market’s overall tempo – not to mention the Euro’s.
Chart of EURJPY (4-Hour)
Chart created with the IG Trading Platform
One of the most neglected but interesting of the Euro crosses in my view is EURCHF. It has helt to its 1.1060 to 1.0815 range for four months now. A break will come eventually, but it would likely come with the systemic move that drive all Euro pairs from holding patterns. The perspective of range fits the reality of the market nicely which helps us think in more probabilistic terms. A fib, 200-day moving average and range convergence around 1.1065 is one of the more convincing levels among the major crosses. Lower, the 1.0815 swing low is the extreme, but a series of higher lows will likely present support a little higher around 1.0850-1.0875..
Chart of EURCHF with 200-Day Moving Average (Daily)
Chart created with the IG Trading Platform
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From speculative positioning, there is as restrained a perspective among Euro speculators as there is in the price action itself. From the longer-duration futures crowd, we have a net short position that is far from the extremes of 2015 or 2012 – in fact, we aren’t even as stretched an interest as what we had towards short exposure back in April. That offers neither profound contrarian signal nor follow through priming. In retail positioning measured by the IG Client Sentiment data, it is more evident that traders are taking greater advantage of the range. This crowd tends to lean against prevailing trends for contrarian signals, but their habits are lining up nicely to our underlying range bound markets.
Chart of Net Speculative Positioning in EURUSD Futures from CFTC Report (Weekly)
Chart of Retail Trader Positioning from IG Clients (Daily)
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