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Weekly Euro Technical Forecast: Ranges as Far as the Eye Can See

Weekly Euro Technical Forecast: Ranges as Far as the Eye Can See

Technical Forecast for the Euro: Neutral

  • The Euro has been trading sideways for several months, and amid the holiday week, there’s not much reason to think the range trading conditions will change.
  • Some EUR-crosses may have a short-term bearish bias within their ranges, but illiquid conditions and a thin economic calendar further reduce the odds of breakouts occurring this week.
  • The IG Client Sentiment Index suggests that most EUR-crosses have a mixed trading bias.
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Euro Continues Sideways Grind

The Euro continued its trendless trading across most of the EUR-complex, which has proven to be less exciting than other currencies in recent months. Indeed, since August 1, only one EUR-cross (EUR/NZD) has moved in excess of +/-2%.

Needless to say, the Euro has been trading rangebound for several months now – there are ranges as far as the eye can see. And while some EUR-crosses may have a short-term bearish bias within their ranges, illiquid conditions and a thin economic calendar around the US Thanksgiving holiday further reduce the odds of breakouts occurring this week.

Forex Economic Calendar Week Ahead

Even with the US Thanksgiving holiday’s impact on trading conditions this week, the Euro forex economic calendar still has several events that could move markets. Unfortunately for the Euro, these data are expected to show deterioration in growth conditions, which could cater to further downside pressure within the recent ranges carved out in pairs like EUR/GBP, EUR/JPY, and EUR/USD.

On Monday, November 23, the November Eurozone PMI Flash reports are due, all of which (composite, manufacturing, and services) are due to show significant backslides relative to the October readings – not a surprise given the lockdowns implemented across the monetary union’s largest economies. On Tuesday, the final Q3’20 German GDP report will be released. Also on Tuesday, European Central Bank President Christine Lagarde will give a speech during a virtual roundtable, preceding the release of the October ECB policy meeting minutes on Thursday, November 25.

EUR/USD RATE TECHNICAL ANALYSIS: DAILY CHART (NOVEMBER 2019 TO NOVEMBER 2020) (CHART 1)

Weekly Euro Technical Forecast: Ranges as Far as the Eye Can See

Little has changed for the Euro over the past near-two weeks. “The broader sideways range carved out since late-June remains in place, even as the tighter range dating back to July has seen both support and resistance temporarily broken. EUR/USD rates continue to bound around the downtrend from the 2008 and 2014 highs (from the all-time high).”

But EUR/USD rates are now above their daily 5-, 8-, 13-, and 21-EMA envelope, which is in bullish sequential order. Daily MACD is trending higher above its signal line, while Slow Stochastics have moved into overbought territory. Momentum is accelerating to the topside, if only barely; the ranges hold for now. Gains above 1.1910 could increase the odds of a return to the yearly high near 1.2011. Losses below 1.1680 could increase the odds of a drop to the November low of 1.1603.

IG Client Sentiment Index: EUR/USD Rate Forecast (November 20, 2020) (Chart 2)

Weekly Euro Technical Forecast: Ranges as Far as the Eye Can See

EUR/USD: Retail trader data shows 28.53% of traders are net-long with the ratio of traders short to long at 2.51 to 1. The number of traders net-long is 3.44% higher than yesterday and 13.05% lower from last week, while the number of traders net-short is 7.32% lower than yesterday and 10.32% higher from last week.

We typically take a contrarian view to crowd sentiment, and the fact traders are net-short suggests EUR/USD prices may continue to rise.

Positioning is less net-short than yesterday but more net-short from last week. The combination of current sentiment and recent changes gives us a further mixed EUR/USD trading bias.

EUR/JPY RATE TECHNICAL ANALYSIS: Daily CHART (November 2019 to November 2020) (CHART 3)

Weekly Euro Technical Forecast: Ranges as Far as the Eye Can See

EUR/JPY rates have not made much progress after two key developments in the past three weeks. “The EUR/JPY rate daily chart turned bearish at the start of November upon the break of the rising trendline from the May and September swing lows.” However, “EUR/JPY trade[d] back to the May and September trendline,” giving the illusion of a bullish pretense to price action.

But the nature of a rangebound market is that neither support nor resistance will break, and that is exactly what has happened in EUR/JPY rates in November. EUR/JPY closed out the week at rates it had visited back in October, September, July, and June. Not much progress has been made.

Momentum indicators suggest that not much progress will be made in the near-term either, even as a slight bearish tint has appeared. EUR/JPY rates are below the daily 5-, 8-, 13-, and 21-EMA envelope, which is in neither bearish nor bullish sequential order. Daily MACD is flat just below its signal line and Slow Stochastics are declining towards its median line. It’s difficult to foresee a break of either the November high (125.14) or low (121.70) in the coming days.

IG Client Sentiment Index: EUR/JPY Rate Forecast (November 20, 2020) (Chart 4)

Weekly Euro Technical Forecast: Ranges as Far as the Eye Can See

EUR/JPY: Retail trader data shows 52.72% of traders are net-long with the ratio of traders long to short at 1.12 to 1. The number of traders net-long is 13.40% lower than yesterday and 46.03% higher from last week, while the number of traders net-short is 9.01% lower than yesterday and 0.95% lower from last week.

We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests EUR/JPY prices may continue to fall.

Positioning is less net-long than yesterday but more net-long from last week. The combination of current sentiment and recent changes gives us a further mixed EUR/JPY trading bias.

EUR/GBP Technical Analysis: Daily Rate Chart (November 2019 to November 2020) (Chart 5)

Weekly Euro Technical Forecast: Ranges as Far as the Eye Can See

EUR/GBP rates have been trading sideways through July, but symmetrical triangle support from the February and September lows has broken (trading is a function of price and time, so a sideways move can force price outside of a consolidation, provided enough time has passed). A bearish break of the triangle is occurring all while EUR/GBP rates test at the descending trendline from the 2008 and 2016 highs.

Bearish momentum is gathering pace, if marginally. EUR/GBP rates are below their daily 5-, 8-, 13-, and 21-EMA envelope, which is in bearish sequential order. To this end, daily MACD remains in bearish territory and is trending lower, while Slow Stochastics have started to pull back below their median line. More weakness towards the November low (0.8861) can’t be ruled out.

IG Client Sentiment Index: EUR/GBP Rate Forecast (November 20, 2020) (Chart 6)

Weekly Euro Technical Forecast: Ranges as Far as the Eye Can See

EUR/GBP: Retail trader data shows 53.61% of traders are net-long with the ratio of traders long to short at 1.16 to 1. The number of traders net-long is 7.32% higher than yesterday and 15.54% higher from last week, while the number of traders net-short is 8.83% lower than yesterday and 18.08% lower from last week.

We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests EUR/GBP prices may continue to fall.

Traders are further net-long than yesterday and last week, and the combination of current sentiment and recent changes gives us a stronger EUR/GBP-bearish contrarian trading bias.

— Written by Christopher Vecchio, CFA, Senior Currency Strategist