Bearish Shift: EUR/USD has been bearish since retreating from the 1.3993 high on the year, made in May. It has broke below a rising trendline from 2012, and has been making fresh lows on the year. The weekly RSI reading has broke below 40, a reflection that the bullish momentum for 2 years is gone.
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200-Week SMA: This week, EUR/USD took another step in the bearish direction.If price can close this week below 1.3350, It will have closed below the 200-week Simple Moving Average (SMA). In the meantime, EUR/USD also broke below the 1.3295-1.33 lows from Sept. 2013.
Next Support: The bearish continuation signal has now opened up the 1.31-1.3105 lows from Sept. 2013, and perhaps the 1.30 psychological handle. It looks like there should be downside towards these levels, but when price is around these support factors, and the weekly RSI has dipped below 30, we should anticipate some consolidation that might establish a low for the rest of the year.
Intra-session Look: Let’s zoom in on the intra-day, 4H chart. While the weekly RSI has room to fall before it is oversold, the 4H RSI has dipped below 30. We can expect some consolidation here ahead of the FOMC meeting at 2:00PM ET (8/20). However, if the market becomes USD-bullish after the minutes, EUR/USD might fall further despite oversold RSI reading in the 4H chart.
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Pullback: On the other hand, if the reaction is not USD-bullish, and the EUR/USD continues to consolidate or even pull back up, look for resistance in the 1.3333-1.3350 area, the lower bound of the previous consolidation. Also, look for the RSI to stall if it gets into the 50-60 area. Then, we should expect a bearish continuation attempt.
A break above 1.34 might give the bearish outlook some trouble and suggest a more significant consolidation before resuming the downtrend. So, we should expect resistance there if the 1.3333-1.3350 area is broken. It would take very dovish FOMC minutes to take away not only USD strength but weaken it significantly against the ailing euro. So, even if the tone is not as hawkish as USD-bulls would like, the EUR/USD should remain bearish.
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