Short term
Trade view / 29 August 2016 at 0:40 GMT

EURUSD: Plenty of downside potential ahead

Managing Director / Technical Research Limited
New Zealand

The US dollar will start the week on a roll after reversal day on the major crosses on Friday, spurred along by comments from the US Federal Reserve Chair Janet Yellen and Deputy. But two key data points will determine whether the rally can gather any momentum: July’s PCE inflation numbers (out today) and the July employment (Friday). 

The inflation update won’t raise any pulses, but hopes are high for a 180,000-200,000 jobs added number which would be enough to see the unemployment rate drop again to 4.8%, thus confirming the “solid performance” of the labour market. 

ECB big hitter Benoit Coeure was also attending the Jackson Hole symposium and he suggested monetary policy still had an easing bias in the Eurozone. The flash estimate of inflation for August in Germany on Tuesday and for the Eurozone the day after should shed some more light on that situation.

Management and risk description

From both Elliott Wave and classical charting perspectives, the euro is interpreted as having significant downside potential in the days, weeks and even months ahead. As always of course, this will require constant monitoring and technical re-evaluation to optimise trading opportunities (which I will be doing).

In the context of the Elliot Wave principle, it is tenable to interpret the completion of EURUSD’s broad Wave IV/ Triangle correction (see weekly and daily charts below) whilst from a classical charting stand point, EURUSD displays a (potential) developing 6-month Head and Shoulders reversal formation (see daily chart below).

In the short term, resistance now lies at 1.1215/1.1240 for sell-off towards the low 1.1100s en route to 1.1050 (initially).


Entry: EURUSD is seen as a sell today at 1.1215/1.1240.

Stop: 1.1264, initially. 

Target: 50% at 1.1126 and 50% at 1.1067.  

Time horizon: Allow several days for targets to be met.  

EURUSD daily chart (click to expand)
EURUSD daily chart
Source: ThomsonReuters  

EURUSD daily chart (click to expand)
EURUSD daily chart
Source: ThomsonReuters  

EURUSD weekly chart (click to expand)
EURUSD weekly chart
Source: ThomsonReuters. Create your own charts with SaxoTrader; click here to learn more.  

— Edited by Susan McDonald

Non-independent investment research disclaimer applies. Read more
29 August
Ali Baba Ali Baba
excellent analysis Max
29 August
abach abach
What will a stronger dollar mean for the rate hike? And also considering that the ECB does not want a weaker euro and the FED does not want a stronger USD...
29 August
Max McKegg Max McKegg
The Fed has often mentioned the dollar as a reason for low inflation and so, after today’s flat PCE numbers, they will back off any suggestion of rate hikes if USD rallies too far. As for the ECB, they are in a similar position. As this chart shows, there is a good correlation between the EUR TWI and inflation expectations. They want/need EURUSD to come down.


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