The EUR/USD has so far surprised many with its upward momentum. The key question now is not whether, but when will it turn around for another leg down. For signals about timing, technical analysis is usually more helpful and reliable than the fundamental analysis. The former is the tool to help decide where, when and how the price might move, while the latter is the force and the reasoning behind the big, longer-term moves.
Judging by the technical charts below, we see three potential moves ahead for the EUR/USD:
Scenario 1: The pair moves toward the confluence of the near daily supply zone (1.1545-1.1680), where it meets the 200-day moving average, and from there it resumes its long-term downtrend. This also coincides with the completion of the double bottom pattern, as the daily supply zone’s distance from the double bottom’s neckline is the same as the pattern’s height (see chart, below). We believe this is the most likely scenario we’ll be seeing this week.
EUR/USD Daily Chart
If this becomes the case, we will then have to see how the pair handles the neckline. Closing below it will probably signal a continuation down; Holding above it with a clear price action signaling up will open the way for more gains in the levels above.
Scenario 2: The EUR/USD breaches the daily supply zone and continues moving a bit higher into the broken monthly demand zone. The bottom of this demand zone is actually the top of the aforementioned daily supply zone (around 1.1680), which means the market has already tested and confirmed the role-reversal of this broken zone. In this scenario, the top of the monthly zone – around 1.1840 – is the strongest resistance point. Waiting there for a reversal signal in the form of a daily price action (evening star, bearish engulf, shooting star) will give those who want to short the pair the best risk:reward ratio.
EUR/USD Monthly Chart
Scenario 3: After overcoming the hurdles mentioned above, the pair keeps moving even higher—toward a strong weekly trend-line, which managed to hold the price above this point for a few weeks. When the weekly candle closed below it, this became the signal for the bears to storm ahead, pushing the price almost 1700 pips lower. Currently, what looks to be the bears’ last stronghold, awaits around 1.2270. However, as the weeks go by, it moves up (since it’s a rising trend-line.)
This is the least likely scenario at the moment, but it is definitely not impossible, as long as the US Dollar Index keeps moving down, as mentioned last week.
EUR/USD Weekly Chart