Euro Technical Outlook: EUR/USD Grind Continues, EUR/JPY Brews Bull Pennant

After a jarring sell-off drove EUR/USD from above 1.2000 to below 1.1500, there’s been an almost eerie sense of quiet over the past two weeks. At this stage the pair can be approached in either direction depending on time frame and vantage point and there’s a valid case for both bulls and bears with a seeming overhang from the ongoing conflict in the Middle East.

As tensions flared USD-strength came rushing in, and EUR/USD moved from being overbought on the daily chart in late-January to oversold on the same format in mid-March. As I highlighted in both instances, chasing trends in those stretched extreme states was a challenge, and so far, both scenarios have produced a pullback.

But, as I said in late-January regarding the USD with prices pulling back, now trend chasers have an open door to make a push for continuation as the market is no longer showing oversold readings and there’s been a bit of lower-high resistance holding so far.

EUR/USD Daily Chart

Chart prepared by James Stanley; data derived from Tradingview

EUR/USD Longer-Term

From the weekly chart the past two weeks seems a simple stall in a broader bearish trend and if looking for either USD-strength or Euro weakness this is the vantage point that traders would likely want to favor.

EUR/USD Weekly Chart

Chart prepared by James Stanley; data derived from Tradingview

EUR/USD

If you’re a Euro bull or USD bear, it’s the shorter-term chart that stands out, and for this approach, you’d likely be also considering an easing in Middle East tensions and/or a bearish backdrop in USD/JPY, which could be produced by an intervention type of approach should the 160.00 level come into play.

Since closing at the lows two weeks ago, EUR/USD has been grinding both higher-highs and higher-lows. And while this looks unconvincing yet on longer-term charts, the reality is that most turns start with a degree of grind, very similar to what showed in EUR/USD in early-February when higher-lows were getting broken by sellers taking on more control.

The 1.1655 level remains a key line-in-the-sand which opens up for a push towards 1.1750 and 1.1766.

For support, it’s the 1.1500 level that’s been defended so far this week and this morning is showing a higher-low defense of that price with 1.1525 standing in as support.

EUR/USD Four-Hour Chart

Chart prepared by James Stanley; data derived from Tradingview

EUR/JPY

While the backdrop shifts based on time frame and vantage point above, for Euro bulls there may be a more amenable backdrop elsewhere.

EUR/JPY is at the resistance side of a bull pennant formation as of this writing, and given the 3,000+ pip trend from the lows last year, it makes sense that a bit of digestion would show after fresh all-time-highs printed in January.

EUR/JPY Daily Price Chart

Chart prepared by James Stanley; data derived from Tradingview

EUR/JPY Shorter-Term Dynamics

From the four-hour chart bulls have so far defended higher-lows but they haven’t yet been able to stretch through the breakout, and it’s the 185.00 level that looms large overhead. Earlier this week we saw a pullback but defense at an important spot of 183.16, so that door for topside breakout remains open.

On a fundamental basis, the item that I think would be most impactful here is a pullback in Middle East tensions, as both oil prices and the USD could take a step back which would deductively bring an element of strength to the Euro that wouldn’t necessarily have to come along with a stronger pullback in USD/JPY.

EUR/JPY Four-Hour Price Chart

Chart prepared by James Stanley; data derived from Tradingview

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