US Dollar, Euro, British Pound, EUR/USD, EUR/GBP – Technical Outlook:
- EUR/USD’s slide could pause
- EUR/GBP has retreated from near stiff resistance
- What is the outlook and what are the key levels to watch?
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EUR/USD SHORT-TERM TECHNICAL FORECAST – NEUTRAL
Deeply oversold conditions as EUR/USD tests key support raise the possibility of a minor pause in the broader downtrend. EUR/USD is testing support on the lower edge of a declining channel from 2018, roughly coinciding with 78.6% retracement of the 2000-2008 rally (see chart).
EUR/USD Monthly Chart
However, the rebound may not last. As the chart below shows, since the current leg of the downtrend began in 2021, EUR/USD has failed to decisively clear tough converged resistance on the 89-day moving average (DMA) and the upper edge of the bearish channels. The resistance zone currently works out to 1.0000-1.0150, which includes the upper edge of the current channel from April 2022 and the 89-DMA. Stronger resistance is at the mid-September high of 1.0197.
For a rebound to be meaningful and lasting, in addition to clearing of the above resistance zone, momentum must improve. The previous rebounds lacked steam – the 14-day Relative Strength Index (RSI) failed to decisively cross 60. Unless the RSI rises above 60 – that is, upward momentum improves significantly – EUR/USD’s rebound could soon run out of steam.
EUR/USD Daily Chart
Moreover, the broader trend for EUR/USD remains down after it this year fell below crucial horizontal trendline support from 2017. Any break below the lower edge of the channel from 2018 could open way towards the 2000 low of 0.8225.
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EUR/GBP SHORT-TERM TECHNICAL FORECAST – SLIGHTLY BEARISH
EUR/GBP’s uptrend from August is running out of steam and the cross risks some more weakness in the near term, especially if it breaks below the September low of 0.8565. Such a break could pave way towards the August low of 0.8338, potentially the lower edge of a sideway channel from 2016 at about 0.8200.
The long-legged candle formed on the monthly chart in September, indicating rejection at higher levels, is another sign that EUR/GBP may have run its course for now, if history is any guide. EUR/GBP went sideways for months after similar long-legged candles since 2016 (see chart).
EUR/GBP Monthly Chart
The sharp retreat in September is also reflected in momentum, which has stalled below 60. Typically, RSI between the 40-60 zone signifies range-bound conditions. The RSI band continues to hold well since 2017. On the upside, EUR/GBP could encounter initial resistance on the 30-day moving average (now at about 0.8715, stronger resistance at last week’s high of 0.8867.
The broader sideway trend to change to bearish, EUR/GBP needs to break below the horizontal trendline support at 0.8200.
— Written by Manish Jaradi, Strategist for DailyFX.com