The euro is preparing for further falls in the days ahead as it faces the wrath of a strongly bearish resistance trend line and a negative market sentiment. This is despite news that Greece has agreed to a third debt bailout that goes some way in quashing fears of a repeat of the debacle and subsequently buoyed the currency pair.
Despite the correction higher against the US dollar and a fourth straight session of gains, the pair faces an extremely bearish short term trend line. The euro had recently attempted to breach the trend line, but failed on the push, and has subsequently retreated lower to lick its wounds.
Currently, there is near term resistance around 1.1047, which happens to coincide with the 38.2% Fibonacci retracement level. Any subsequent break below this level is likely to mean the formation of another, short term bearish leg. On balance, there is potential for the euro to decline back towards the support range around 1.0840, before retracing back towards the top of the bearish trend line.
There is,however,some divergence as RSI is still trending higher within the neutral zone and is yet to reach over-bought territory. This could potentially signal another lacklustre attempt at breaching the resistance trend-line. In fact, this is mirrored in the parabolic SAR which is still indicating a pair on the rise. However, given the lagging nature of these indicators, it is important to keep the evidence of the overall bearish bias in focus.
Moving forward, the horizontal pivot point at 1.0988 will be the key in determining if there is enough selling pressure for the pair to move towards strong support within the 1.0840 range. In my analysis, it is highly probable that 1.0988 will form as the near term target. However, be aware that the 23.6% Fibonacci retracement level at 1.0952 will also be in play and may stymie any further falls
On balance, the evidence of an additional bearish leg formation is overwhelming, and the pair should subsequently be monitored for a confirmation of the move.