Euro Attempting Breakout Against USD

Alan Penny

7 October 2019

3 min read

Euro Sign

  • Euro testing major figure
  • Downtrend line offering significant resistance
  • 50-day EMA just above
  • Continued downtrend to be tested

The euro gapped slightly higher during the open on Monday, and then turned around to not only fill that gap, but to drop even further. However, we have turned around completely since then to show signs of strength, with the market testing the 1.10 USD level. Beyond that, there are multiple reasons to think that resistance above the still could come into play. This means that the euro is attempting a major breakout, and now it comes down to whether or not there are any real legs in this move.

Confluence of resistance

There is a significant confluence of resistance just above, not only the 1.10 level, which of course is a large and round significant figure, but there is also a major “breakdown candle” from a couple of weeks ago. Furthermore, there is a major downtrend line that is offering resistance just above as well, followed by a 50 day EMA that of course will attract a lot of attention. With that being the case, it makes quite a bit of sense that the market would run into a buzz saw of selling pressure. However, if the confluence of resistance is broken above, that could signal the beginning of a rather major trend change.

EUR/USD chart

Bond yields and more

Keep in mind that the bond yields in the European Union are still negative overall. That works against the value of the euro in general, as bond markets have a huge influence on where money flows to.

There is still a lot of concern around the world when it comes to geopolitical issues

Money tends to go where it’s treated the best, and as there are positive yields in the United States still, it makes quite a bit of sense that we are in a downtrend when it comes to this pair. There is still a lot of concern around the world when it comes to geopolitical issues. This is typically positive for the dollar, as money will also fly into the bond markets.

Furthermore, global growth is slowing down. And with the United States being one of the few economies that looks reasonably normal at the moment, the US dollar is attracting a certain amount of attention. However, we are most definitely at a potential inflection point right now.

Potential trade setups

If the market can break above the 50-day EMA, that could be paramount to a potential trend change. It probably opens the door to the 1.12 level, which is significant resistance. However, if this market shows signs of exhaustion and rolls over below the bottom of the candlestick from Monday, it’s very likely that the EUR/USD pair could drop down to the 1.09 level again – perhaps even lower than that. Beyond that, there is a gap down at the 1.0750 level which has yet to be filled.

Until proven otherwise, the base case still needs to be that the gap gets filled eventually. However, this pair tends to grind more than a trend.

Written By
Alan Penny

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