EUR/USD Weekly Technical Perspective - Euro Defends 2018 Lows

In this series, we scale-back and take a look at the broader technical picture to gain a bit more perspective on where we are in trend. Euro responded to a key technical support confluence late-last month with the first day of November trade on pace to post the largest single-day advance since late-September. Here are the key targets & invalidation levels that matter on the EUR/USD weekly chart.

EUR/USD WEEKLY PRICE CHART

(Click on image to enlarge)

Notes: In October’s EUR/USD Weekly Technical Perspective, we examined the threat of further losses for the Euro with our ‘bottom line’ noting that, “A break / close below (1.1498) would invalidate the reversal play with such a scenario targeting the yearly low-week close at 1.1436 backed by the 200-week moving average/slope support at ~1.1330 and the 1.13-handle.” A late-break of the monthly opening-range lows fueled accelerated losses with price registering a low at 1.1302 on the last day of October trade. So was that a final washout?

The jury is still out, but there are some interesting technicals observations to consider. Note that the US Dollar Index (DXY) registered a fresh yearly low this week while EUR/USD did not (neither did GBP/USD for that matter). This divergence in price is often exhibited at major market turns/reversals and increases the threat of price exhaustion. Also, note that sentiment has reversed from extremes in net-long positioning not seen since April 2017- which ended up being the origin of the 2017 advance.

While these observations are quite compelling, it doesn’t mean the bulls are out of the woods just yet. A break / weekly close sub-1.13 would leave Euro vulnerable to further losses with such a scenario targeting 61.8% retracement of the 2017 advance as well as the at 1.1186 backed by broader bullish invalidation at the slope confluence near 1.10.

Bottom line: EUR/USD has responded to long-term uptrend support-confluence at 1.13– a region defined by the November 2016 swing high, the 2018 swing low and the 200-week moving average. Watch the weekly close - a break / close above the August low-week close at 1.1436 would be needed to alleviate some of the pressure here with subsequent resistance eyed at the September high-week reversal close at 1.1603. Broader bearish invalidation is steady at the 38.2% retracement of the yearly range at 1.1780.

From a trading standpoint, a good spot to reduce short-exposure / lower protective stops and be on the lookout for signs of exhaustion early in the month. US Non-Farm Payrolls are on tap tomorrow with the Mid-term Elections and the FOMC interest rate decision looming next week. Stay nimble into the monthly open- I’d expect failure rather early in the month if this rebound is just a fake-out. I’ll publish an updated EUR/USD scalp report once we get further clarity on near-term price action.

EUR/USD TRADER SENTIMENT

• A summary of IG Client Sentiment shows traders are net-long EUR/USD - the ratio stands at +1.78 (64.1% of traders are long) – bearish reading
• Traders have remained net-long since October 1st; price has moved 1.7% lower since then
• Long positions are9.9% lower than yesterday and 2.4% higher from last week
• Short positions are 2.5% lower than yesterday and 18.3% lower from last week
• We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests EUR/USD prices may continue to fall. However, traders are less net-long than yesterday but more net-long from last week and the combination of current positioning and recent changes gives us a further mixed EUR/USD trading bias from a sentiment standpoint.