It was quite a week for the USD as the Fed announced the end of Quantitative Easing. The EUR/USD fell to a fresh low on the year, and the lowest since August 2012. Now, the Bank of Japan surprised the markets by expanding its already unprecedented stimulus measures. This week, the ECB will have its go as the last of the 3 central banks, well now 2, dealing with unconventional stimulus measures.
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When we look at the daily EUR/USD chart from a purely technical perspective, we can see a bearish trend that is intact after October’s consolidation.
1) The 200-, 100-, and 50-day SMAs are sloping down and are in bearish alignment, with price trading under them.
2) The RSI held below 60, and mostly below 50 after tagging below 20. This reflects a market in persistent bearish momentum.
The October price action was a bearish continuation head and shoulders pattern, and price has already extended lower into fresh lows on the year. Where should we look next for support?
Well, first of all let’s be aware that there will be an ECB monetary policy statement on Thursday (11/10) this week. Other than that, there isn’t any other key releases for the Eurozone. The ECB will continue to be pressured to increase stimulus measures. BoJ’s addition of stimulus actually puts more pressure on the ECB to implement further easing policy as well. However, the ECB is not expected to go full-scale QE just yet. But let’s see what it says about the stimulus measures ie. Asset-Back-Security (ABS) purchases that are already implemented.
Then, after the statement, let’s see what the EUR/USD does. We should look for sellers in the 1.26-1.2625 area. But if price is able to climb above 1.27, the bearish outlook might be in trouble. IF price for the most part stays below 1.26, or breaks above but returns below it within a couple of sessions, EUR/USD is likely to remain in bearish continuation.
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When we look at the weekly chart, we see that next key support might be in the 1.2285-1.23 area, but don’t be surprised if price makes it down to the 1.2042 level, especially if the market expects the ECB to eventually implement full-scale QE.
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