As of Friday’s European close, EUR/USD was in the midst of one of its slowest weeks in recent memory: rates had consolidated in just a 114-pip range, despite a number of second-tier data releases and major market developments elsewhere. Then, in the typically-lackluster final couple hours of trading, the pair saw a quick short squeeze back through psychological resistance at 1.2500 as bears chose to take profits on their positions en masse ahead of the weekend.
Friday’s short squeeze has left EUR/USD in an interesting position. The price action created a Bullish Engulfing Candle on the daily chart, suggesting an intraday shift from selling to buying pressure and foreshadowing the potential for more gains this week. However, rates have seen little follow through so far today, and key resistance levels from the bearish trend line (currently 1.2600) and the 50-day MA (1.2680 as of writing) may cap any short-term rallies anyway.
Meanwhile, the secondary indicators are also generally bearish. Though the MACD is inching above its signal line, it is still well below the “0” level, confirming an overall bearish trend. The RSI indicator also bounced back modestly last week, but remains mired in bearish territory (<60), despite the recent bullish divergence.
At this point, the weight of the evidence suggests that the prolonged EUR/USD downtrend remains the dominant feature of the market, so lower prices are still favored in the medium term. That said, a rally back above the 50-day MA could shift the outlook to the topside for a more sustained bounce (and corresponding pullback in the US Dollar) toward 1.2850.
Key Economic Data / News That May Impact EUR/USD This Week (all times GMT):
- Today: Speech by ECB President Draghi (14:00), US Capacity Utilization and Industrial Production (14:15)
- Tuesday: German ZEW Sentiment Survey (10:00), US PPI (13:30), US NAHB Housing Market Index (15:00)
- Wednesday: US Building Permits and Housing Starts (13:30), FOMC Meeting Minutes (19:00)
- Thursday: Eurozone PMI Data (8:00-9:00), US CPI and Initial Unemployment Claims (13:30), Philly Fed Manufacturing Index (15:00)
- Friday: Speech byECB President Draghi (8:00)
Source: FOREX.com
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