EUR/USD Clings to Support as Lagarde Announces Early Departure

EUR/USD Talking Points:

• EUR/USD bears were back on the prowl last week and despite a fresh yearly low set just after the ECB announcement on Thursday, sellers weren’t able to break much fresh ground.
• EUR/USD had previously tried to push into a turn but bulls seemingly became disinterested above 1.1250 and that helps to set the stage as we go into the final two months of the year.

EUR/USD bears have had control of the pair for the better part of the past two months. After topping at 1.1700 in August, the pair went on a steep fall that saw only pauses at support, at least until mid-October. At that point, the pair went into its most oversold backdrop on the daily chart since 2015 and finally, it looked like there was some support that could hold for a little bit around the 1.1100 handle.

Well that support was under fire last week and while it hasn’t given way yet, there’s still a lacking willingness from buyers to show up to reverse that short-side trend.

EUR/USD Weekly Chart

Chart prepared by James Stanley; data derived from Tradingview

EUR/USD: The Bearish Case

While some persistent support is usually a positive for those looking for longs, the other side of the matter should be investigated here because that horizontal support also comes along with a series of lower-highs, and that sets up a descending triangle formation which is a bearish breakout setup.

EUR/USD Four-Hour Chart

Chart prepared by James Stanley; data derived from Tradingview

EUR/USD: The Bullish Case

This is the side that would need some work given the persistence of the sell-off. It would probably also need some stepping back from the ledge with the risk off momentum that’s started to build globally. As demand for US Treasuries has heated up, with capital leaving markets like French bonds, so too has demand for the USD. So, naturally, we would probably need that fear to abate to allow for bullish EUR/USD scenarios to play out.

But given the leadership change atop the ECB, there is perhaps hope for a Draghi-like pledge of unity similar to the 2012 ‘whatever it takes’ speech that seemingly helped to reverse the slide in the single currency.

Those are big picture items and unlikely to show or take precedence over the next week or so, but the simple hope that it may be on the horizon could be enough to cause some shorts to close which could add upward pressure on the currency pair.

For next week, it’s the 1.1200 level that bulls would first need to take out, and then the 1.1263 level that would show a greater willingness to take control of EUR/USD. If we get that, then bullish scenarios could be entertained, driven by the prospect of change following an aggressive two months of selling.

EUR/USD Daily Chart

Chart prepared by James Stanley; data derived from Tradingview

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