Euro Technical Forecast: EUR/USD Fresh Highs, EUR/JPY Fresh Lows

Euro Talking Points:

• EUR/USD finished the prior week with an open door for bears, but they were disinterested in holding the trend as stalling in early trade last week led to a pullback and a push back above the 1.1500 handle after the FOMC rate decision.
• While there was a technical backdrop to explain the move, the fundamental argument was lacking, giving credence to the idea that it was the larger unwind of USD/JPY carry trades that drove USD selling across-the-board.

It was a big week for the FX market, but most of that drive came from the USD/JPY pair. While the prior week ECB meeting saw Christine Lagarde take a dovish tilt, EUR/USD stuttered after a downside break of a bear flag formation. To be sure, last week started with an open door for sellers but they were seemingly disinterested in continuation as short-term price action built a falling wedge ahead of the FOMC meeting, and that led to a bullish breakout as Kevin Warsh steered away from any rate hike announcements.

I looked at that in the webinar the day before FOMC and as I said then, a topside break above the 1.1500 handle could prove meaningful, as that’s a big level of importance on a longer-term basis.

Unfortunately, with how it happened, it’s perhaps more difficult to be convinced of that as the USD-selling in the latter-half of the week really seemed to root from the widely-suspected intervention in USD/JPY. And given how crowded that trade has become after five years of trend saw almost 60% added on to the spot rate, it makes sense how USD/JPY reversing could bring Dollar-selling across-the-board.

EUR/USD, however, remains clean from a technical perspective and buyers now have an open door to make a push following the print of a fresh monthly high, and a trip back above that significant spot of 1.1500.

EUR/USD Four-Hour Price Chart

Chart prepared by James Stanley; data derived from Tradingview

EUR/USD Daily Chart

From the daily chart, buyers don’t yet look finished as the long underside wick on the Friday candle illustrates a strong response to a pullback. This points to the possibility of re-test of the next zone up, spanning from the 1.1576-1.1613 zone of prior resistance-turned-support.

EUR/USD Daily Chart

Chart prepared by James Stanley; data derived from Tradingview

EUR/JPY

As proof of the bigger item behind FX flows for last week, while EUR/USD was setting that fresh monthly high, EUR/JPY was setting a fresh monthly low. But importantly – that low printed at a very familiar spot, as it’s the same chasm from 182.65-183.16 that was in-play to hold the lows back in May.

I had talked about this one a couple of different times over the past two weeks, highlighting the range that’s been in place for the pair. Well, it’s now at range support and this could present a compelling argument for traders that are looking to fade the recent run of Yen-strength.

With that said, that matter around the Japanese Yen remains highly fluid, and thus, volatile, and if we do see another swing of Yen-strength then EUR/JPY could possibly sink along with USD/JPY such as we saw last week.

EUR/JPY Daily Price Chart

Chart prepared by James Stanley; data derived from Tradingview

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