Euro Technical Outlook – The Pullback Continues. Will EUR/USD go Lower?

Euro, EUR/USD, US Dollar, Bollinger Bands, Volatility, Island Reversal, Fibonacci – Talking Points

• Euro bearish unfolded with some signals added weight
• EUR/USD price action has seen mixed volatility results with event risk looming
• 1.1130 could be pivotal for EUR/American dollar direction Will it test higher?

EUR/USD TECHNICAL ANALYSIS

The mid-July peak of 1.1275 traded outside the upper band of the 21-day simple moving average (SMA) based Bollinger Bands.

After it closed back inside the band, it opened a bearish run over the next few days as discussed here at the time.

Not surprisingly, the width of the Bollinger Bands narrowed as the price retreated. This indicates that historical volatility has decreased. This is a measure of the price action in the past.

At the same time, one-month implied volatility at the money (ATM) increased.

It climbed back above 7% this week after visiting below 6% in June. This is the market price of forward looking price volatility.

This should not be surprising given the risk of the event this week with monetary policy meetings for the Federal Reserve and the European Central Bank.

After closing within the aforementioned Bollinger Band, it later confirmed an Island Reversal pattern after it broke below 1.1133, as highlighted here last Friday. A move back above 1.1133 would negate this signal.

An Island Reversal occurs when there is a gap in price action that extends the bullish or bearish trend. After the price reaches its zenith or nadir, the price action then makes another gap in the price in the opposite direction to where the first gap occurred.

If the Island Reversal is unwound, the 1.1275 – 80 area may offer resistance as the high there on July 18 coincides with some historical breakout points.

Further up, resistance could be at the 161.8% Fibonacci Extension of the move from 1.1095 to 1.0635 at 1.1380. Just above there are some more breakout points in the 1.1385 – 95 area.

Nearby resistance could be at the breakout points of 1.1076, 1.1095 and 1.1185.

On the downside, support could be near the 38.2% and 50% Fibonacci Retracement levels at 1.1031 and 1.0955 respectively. Between those levels, the breakout point at 1.1012 may provide support.

Below those levels lie the 55- and 100-day SMAs, which could provide support in the 1.0890 – 1.0900 area.

Further below, there is a series of previous lows and break points between 1.0830 and 1.0835 that could provide a support zone.

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EUR/USD DAILY TIME

Chart Created in TradingView

— Written by Daniel McCarthy, Strategist for DailyFX.com

To contact Daniel, use the comments section below or @DanMcCathyFX on Twitter