EUR/USD Likely to Fall Back Below 1.10

By: Richard_Cox

The EUR/USD has fallen under the radar in recent weeks, as overall volatility in the currency space as slowed significantly.  There are a few different reasons for why this is happening, as recent central bank statements have clarified what we are likely to start seeing from both the US Federal Reserve and the European Central Bank (ECB).  To some extent, we are seeing dovish alterations in many of the previous expectations that most analysts had for both central banks.  So, it would not be entirely surprising to see some accompanying trend changes in the weeks ahead.

Chart View:  EUR/USD

Source: FiboGoup

When we look at the one-year price history in the EUR/USD, it is clear that selling pressure has resulted in a mostly sideways range above 1.05.  The pair has worked its way around important psychological levels, and the trends seen over the last few years is now showing signs of stalling.

For most of this year, we have seen higher prices in the EUR/USD pair but we now have a  double top that is forming near 1.12 that will likely deter prices going forward.  As long as this important resistance level remains intact, we should continue to see sellers enter the market toward prices below the 1.10 level.  This, of course, would be viewed as the break of a major psychological level might put continued pressure on the downside for the pair.

Dovish Federal Reserve?

At odds with this viewpoint is the potential for the US Federal Reserve to begin altering its previously hawkish interest rate policy.  When we look at the specifics of the statement that accompanied the most recent meeting, it is clear that the Fed still has some reservations about the possibility of aggressively higher rates before the end of this year.  It this does actually turn out to be an accurate representation that we are likely to see in terms of the general EUR/USD valuation. 

It will continue to be important to monitor the technical price levels for the pair, as this will be the best indication of where sentiment lies for the Euro against most of its commonly traded counterparts.  Most formidable for the EUR/USD is the fact that we have a major double top that is forming on the long term charts.  This suggests that markets have made more than one attempt to overcome the zone and failed both times.  This will make it difficult for traders to overcome this area on a third try, so it is more likely that we will see a break below 1.10 first. 

By Richard Cox

© 2015 Richard Cox - All Rights Reserved

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