EUR/USD TECHNICAL FORECAST: BEARISH
- Euro looks to have topped near 1.20 against the US Dollar
- Shallow upswing may yield to a decline below 1.15 figure
- Long-term chart setup warns of a drop past parity ahead
The Euro completed a bearish Broadening Top chart formation, as expected in our latest quarterly forecast. A clear-cut break of the pattern’s lower boundary doubled as a breach of four-month rising channel as well as a support shelf just below the 1.18 figure.
Prices have since found an interim floor just above the 1.16 mark and staged a modest bounce. The move looks to have hit a wall on a retest of support-turned-resistance however, painting it as corrective and setting the stage for bearish resumption.
A daily close below the swing bottom at 1.1612 looks likely to open the door for a challenge of the 1.1423-96 inflection zone, bringing the single currency to its weakest in more than two months. Alternatively, reclaiming a foothold back above 1.18 would put prices in a now-familiar congestion region, with scope for another probe of the peak at 1.2011 potentially to follow.
The monthly chart suggests that recent weakness might mark the start of a substantial, long-term downturn. The appearance of an emphatic Bearish Engulfing candlestick pattern squarely at resistance marking the 12-year EUR/USD downtrend suggests the next leg in the structural decline may be on the way. If prior rejections at this boundary prove telling, a drop in excess of 20 percent hitting well below parity may be ahead.
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— Written by Ilya Spivak, Head APAC Strategist, DailyFX
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