EUR/USD Maintains Bearish Outlook; 1.2750-1.28 is Key

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EUR/USD Maintains Bearish Outlook; 1.2750-1.28 is Key

EUR/USD – Bearish Continuation Breakout after FOMC

EUR/USD broke below a flag pattern to a new low on the year this week following the FOMC statement and press conference. It then found support at 1.2834 and pulled back above 1.29. We noted the resistance factors in the 1.2920-1.2940 area,  and expected sellers around 1.2930, as noted in the previous post: “EUR/USD – Expect Sellers Around 1.2930”. As we got started with early 9/19 US session, this scenario has played out, and EUR/USD is maintaining a bearish outlook.

EUR/USD 4H Chart 9/19
eurusd 4h chart 9/19

(click to enlarge)

In the 4H chart the technical signs all point south.
1) 200-, 100-, and 50-period simple moving averages are sloping down, in bearish alignment, with price staying below them.
2) The RSI has tagged below 30, and has since held below 60, showing maintenance of the bearish momentum. This week, it tagged 30, and stayed below 50.

With the bearish breakout, a pullback, and resistance, this bearish set up almost looks too “textbook”, or too perfect. But let’s bite for now. The prevailing trend has been strong, and there’s still some room to fall. However, as we take a look at the weekly chart, we should almost be careful with our bearish outlook. We should be anticipating a significant consolidation/correction to develop as price enters the 1.2750-1.28 area.

EUR/USD Weekly Chart 
eurusd weekly chart 9/19

(click to enlarge)

The 1.2750-1.28 Support Area
In the weekly chart, we can see that there has not been any major consolidation since EUR/USD fell from 1.3993, 2014-high. Well, if it falls below 1.28, it will be testing the 2013- lows that go down to 1.2745. Also note that the 61.8% retracement of the 2012-2014 rally (1.2042-1.3993), resides at 1.2787. Furthermore, the weekly RSI is below 30, showing oversold conditions. (The daily RSI is also tagging 30.) It is very conceivable that if the current bearish attempt extends to 1.28 or below by next week, the 4H , daily, and weekly RSIs will be in oversold territory. This would be another reason to expect at least some short-term consolidation if not a major one, with upside at least back to 1.30.

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Fan Yang has been a professional forex trader and analyst since 2007. He specializes in technical analysis and has a Chartered Market Technician designation since 2011. He was the chief technical strategist at CMSFX He was also the founder and chief currency strategist at FXTimes Over the years, Fan has not only been a trader and analyst but also an educator. As a proponent of both technical and fundamental analysis in trading, Fan advocates simplicity and discipline as key factors in making trading decisions when faced with so many "clues" and "signals". Currently Fan Yang is the chief currency analyst and webinar instructor at forexminute.com.