EUR/USD – Will it Close the Opening Gap First?

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eurusd 4h chart 8/25

EUR/USD Being Draghied Down

EUR/USD started the week with a dip to 1.3183 from Friday’s close at 1.3240. Over the weekend, Draghi noted the dis-inflationary risk and sounded like he was ready for QE. During the Asian-European session, price has been trading sideways. You can argue it is trying to form a mini-double bottom, maybe for a rally back toward 1.3240, filling the gap.

EUR/USD 1H Chart 8/25
eurusd 1h chart 8/25

(click to enlarge)

Double Bottom, German Business Climate
The market would still be bearish even if price does risk above 1.3210 and push toward 1.3240. In fact as price approaches the 1.3240-1.3250 area, we should expect sellers, especially if the 1H RSI is back around 60.

The double bottom development may have been hampered by worse than expected German Ifo Business Climate reading for August, which came in at 106.3, missing the 107.1 average forecast. The July print was 108.0. This survey has show declining conditions since April, when the reading was 111.2.
ifo german business climate 8/25

(click to enlarge, source: forexfactory.com)

Bearish Outlook:
Instead of heading into the gap, trading at the beginning of the 8/25 US session appears to be bearish and is focused on the 1.3183 low. A break below that opens up a bearish continuation outlook that has downside risk toward the 1.31-1.3105 low from Sept. 2013. But it might not go down choppily, as traders start to see an oversold market.

Bullish Divergence:
When you look at the 4H chart, you can see a bullish divergence forming in oversold condition for the RSI. This suggests we should see a consolidation in the short-term. Even if price does dip below 1.3180, there still be some buyers who will believe this market is oversold.

EUR/USD 4H Chart 8/25
eurusd 4h chart 8/25

(click to enlarge)

US New Home Sales:
We might get some volatility after the 10:00AM ET release of New Home Sales in the US for July. The annualized rate is forecast to be around 426K, which would be a rebound from the 406K reading in June. Housing data has been improving and beating forecast. IF the read is say above 430K, the EUR/USD might fail to close this gap with the addition of USD-strength.

To contact the reporter of this story, email Fan Yang at fan@forexminute.com
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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.