Euro Technical Analysis: EUR/USD Resistance Reaction - 1.1000 Next Major Test

Euro Talking Points:

• It’s been a different start to Q4 from the way that most of Q3 went, when EUR/USD spent almost the entirety of last quarter showing strength against the US Dollar.
• The US Dollar has broken out of a falling wedge and growing worries around the Eurozone have been a big part of that, as the Euro’s 57.6% allocation of the DXY basket carries considerable weight with USD trends.

EUR/USD bears have shown up at the start of Q4 and this has a strong tie-in with the US Dollar. The USD was hammered through the first two months of Q3, driven in-large part by the carry unwind in the Japanese Yen. The USD soon pushed into oversold territory on the weekly chart as markets were gearing up for the Fed to kick off a rate cut cycle, and that RSI observation is somewhat rare, as it’s the first such occurrence since January of 2018. Those types of conditions can take time to work through, whether it’s an extension of the sell-off or a reversal/pullback.

For most of September, that’s what we saw. USD bears continually were thwarted at tests of fresh lows, leading to the build of a falling wedge formation. If you look at USD from the perspective of GBP/USD or AUD/USD, that struggle isn’t so evident as each of those pairs were pushing fresh yearly highs. But, in EUR/USD, there was an ongoing struggle at the 1.1200 level that had set the highs in late-August, just after the oversold RSI reading on DXY appeared on the weekly chart.

Last week saw EUR/USD attempt a breakout with a long-term resistance level coming into play, helping to reverse the move. And then on Friday a lower-high appeared in EUR/USD as DXY set a lower-low that, once again, failed to see continuation.

Bulls made another push in EUR/USD after the weekly open but the response since has been aggressive, with sellers driving below a bullish trendline, the 1.1100 zone and then yesterday, the 1.1081 Fibonacci level.

EUR/USD Four-Hour Price Chart

Chart prepared by James Stanley, EUR/USD on Tradingview

EUR/USD 1.1000 Test

Both moves in USD and EUR/USD have priced-in rather quickly at this point and for those that do want to look to fade the move, there may be more amenable pastures for USD-weakness scenarios elsewhere, such as GBP/USD or AUD/USD, as I discussed in yesterday’s webinar.

In EUR/USD, the big question is whether sellers can force a move below the 1.1000 psychological level. This is a big spot for the pair and it was the level that was defended ahead of the ECB meeting a few weeks ago. Sellers were forcing the push-lower after the resistance hit at 1.1200, but buyers stepped in two pips above 1.1000 to hold the lows, leading into the ECB meeting a day later. And then, even with a rate cut from the European Central Bank, the pair rallied, and continued to do so into the end of the month and through the FOMC rate cut.

But I’m expecting that to be a big test if or when it happens. Below that, the next zone on my radar spans from Fibonacci levels at 1.0943-1.0960.

For shorter-term lower-high resistance potential, prior support around the 1.1081 or 1.1100-1.1104 area are of interest.

EUR/USD Daily Price Chart

Chart prepared by James Stanley, EUR/USD on Tradingview

--- written by James Stanley, Senior Strategist