Tuesday’s trading session was controlled by the bears who took the pair down by 100 pips and below 1.1550. This opens the door for a continued drop, possibly below 1.1500 area of support, and that could be bad news for euro bulls.
The big picture
We have an important week ahead as the ECB Forum on Central Banking is underway in Portugal. Several heads of banks are meeting there to discuss important issues related to banking and monetary issues.
Wednesday will be the most important day of the Forum as ECB President Draghi, Bank of Japan Governor Kuroda and Fed Chair Powell will participate in a panel discussion. The event is scheduled at 1:30 pm GMT and we can expect increased volatility during their speeches. The direction will depend on the matters discussed and participants’ attitudes.
Today’s remarks from ECB president Mario Draghi have taken strength from the euro. He says, despite an indication of tightening, that the ECB could extend QE if the data warranted it. The news is notably bearish but doesn’t mean too much as Draghi is well known to downplay every move the bank makes.
Deciphering the technical chart
The bears are in clear control of the chart in the medium term but from a longer-term perspective the pair is approaching a strong support zone represented by 1.1550 and the low at 1.1510. On the daily chart (top picture) the Relative Strength Index has reached its 30 marks (representing oversold) and the pair is also at the bottom of the Bollinger Band channel. These two facts combined with the strong support zone are likely to trigger a bounce higher. This will be a much-needed retracement after a big drop, not a full scale reversal, so be wary of bullish signals without supporting economic data or events.
Support zone: 1.1550 – 1.1510
Resistance zone: 1.1640 followed by the long term bearish trend line
Most likely scenario: Small climb followed by a break of current support with a target at 1.1510 – 1.1500
Alternate scenario: ranging price action capped by 1.1640 and 1.1540
The US Dollar wobbles against Japan’s Yen
The US Dollar is showing tremendous strength across the board, except against the Yen. Japan’s currency is still reluctant to allow the pair to climb and more than that, it’s moving on a downward path in the near term. All eyes are on Wednesday’s panel discussion where BOJ Governor Kuroda will be present.
Deciphering the technical chart
The one-hour chart above shows that the pair has created a temporary bottom at 109.55, bounced higher and is now re-testing the previous support zone at 109.90, which may turn into resistance.
The move up is a normal retracement, which was signaled prior by the oversold position of the Relative Strength Index and may not move much higher. The candles show resistance at this level that, if confirmed, will lead the pair back to its new low.
Support zone: 109.55 (yesterday’s low)
Resistance zone: 109.90 – 110.00 (psychological resistance)
Most likely scenario: continuation of the previous bearish move, with a break of the low
