EUR/USD: Bull Trap or Breakout at 1.1600?

EUR/USD Just Hit 1.1593

Sellers failed to run with a breakdown earlier in the session.

Four-Hour remains bullish

Daily retains bearish potential

Bull trap or breakout?

This multiple time frame clash puts 1.1593-1.1600 front-and-center as there’s a mass of confluence sitting overhead, and if bulls can chew through this the lower-low and high sequence that started from the Fed’s September rate cut comes into question.

The next daily candle can decide everything.

EUR/USD Big Picture

EUR/USD remains a large driver of USD price action and there’s a contentious backdrop in the pair as shorter-term retains a bullish appeal while longer-term still has bearish potential. The 1.1500 test looked at last week has so far held sellers at bay, but bulls are showing more strength as they grind back into Fibonacci resistance of 1.1593. This sets up for a battle at a couple of key levels sitting overhead. I looked into the matter in-depth in yesterday’s webinar where I highlighted both setups, and since then we’ve had a hold of key support in the US Dollar that went along with a hold of resistance in EUR/USD.

Bears had an open door to run with a EUR/USD sell-off this morning but, so far, have failed to do so and at this point the bullish side should be at least entertained given the continuation of higher-lows and higher-highs from the four-hour chart.

In interest of clarity, I think starting with the weekly chart is appropriate as this illustrates how the strong trend from the first-half of the year has been stalled since the Q3 open. This shows a tug-of-war where neither side has really shown much control on a big picture basis, which is what makes the current dynamic so important in EUR/USD.

EUR/USD Weekly Chart

Chart prepared by James Stanley; data derived from Tradingview

The EUR/USD Fibonacci Retracement

I wrote an article on Fibonacci back in February and I used an example in EUR/USD that had already shown multiple inflections. The major move from 2021-2022 produced a setup that caught the high in 2023 almost perfectly at the 61.8% retracement, and then defined the range for the bulk of last year between the 38.2 and 50% retracements.

At the time of publish, EUR/USD remained near multi-year lows following the Q4 rally in the US Dollar, but there had just started a test at the 23.6% retracement of that setup. That low ultimately held and led to a massive bounce in March and April, which then saw price shoot all the way up to the 76.4 and 78.6% retracements in June.

And ever since the Q3 open that’s been the spot on the chart that bulls just cannot leave behind. These price levels remain as a major pull on short-term price action as a significant lower-high was set on October 17^th as prices turned-lower from the 76.4% level at 1.1686, and that now sets up as a key level of resistance.

EUR/USD Weekly Chart

Chart prepared by James Stanley; data derived from Tradingview

EUR/USD The Bearish Sequence

The current three-year high for EUR/USD was set just after the Fed’s announcement of the rate cut in September, but bears have largely been in-control since then per the daily chart. The longer-term Fibonacci levels at 1.1748 and 1.1686 have had a constant role in the matter as support-turned-resistance and it was October 17^th when we had the last test at that zone, which saw sellers pounce until they were able to drive an eventual test of that 1.1500 handle last week.

I looked into that in the webinar and at the time the pair was trading below the psychological level. But as I warned then, that was a price that rarely gave way on the first test, and since then we’ve seen a snap back move as shorts have covered.

Another Fibonacci level came into the picture along the way, with the 38.2% retracement of the May-September move setting support in late-October and since Friday of last week, has been setting resistance at 1.1593.

EUR/USD Daily Chart

Chart prepared by James Stanley; data derived from Tradingview

EUR/USD The Bullish Push

The four-hour chart is where the bullish series begins to come to life, starting with last week’s stall around the 1.1500 handle. As looked at in the most recent webinar, there were two touches at the prior support level of 1.1542, which interestingly set a double bottom formation last month that filled-in almost perfectly. And yesterday, I highlighted another possible double bottom albeit on a shorter-term basis, and that one has a projected resistance of 1.1625.

For bullish continuation, there’s another spot of interest overhead at 1.1668, which marks the most recent lower-high. A breach of that brings to question the broader bearish backdrop, but really it’s the 1.1686 level that I think looms large for the matter as it’s the longer-term Fibonacci retracement that’s continued to hold buyers at bay since the massive rally in the first-half of the year.

But – for bulls – there is another item of interest, and that’s a falling wedge formation given sellers continued stall around the 1.1500 handle. There would need to be a continuation of shorter-term strength to give that formation further validation, but for bulls, it’s a reason for optimism as that’s something that could open the door to a test of the 1.1748 Fibonacci level and perhaps even the 1.1900 level that stalled the move back in September.

EUR/USD Four-Hour Chart

Chart prepared by James Stanley; data derived from Tradingview

--- written by James Stanley, Senior Market Analyst, Global Macro