Improved Economic Sentiment Helping EUR/USD Form a Price Bottom

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Improved Economic Sentiment Helping EUR/USD Form a Price Bottom

The EUR/USD has been basing in November after marking a new low on the year at 1.2357. After a rally from 1.2360, the pair ranged roughly between 1.24 and 1.2505 before extending to 1.2577. This broken range is the basis of a price bottom.

EUR/USD 4H Chart 11/18
eurusd 4h chart 11/18

(click to enlarge)

The 4H chart shows that market started the week fading EUR/USD but gave it support at 1.2450, the middle of the broken range. The ability to hold above this pivot shows some bullish bias, or at least keeps the bearish bias from returning otherwise.

As we get into the 11/18 US session, the EUR/USD pushed above 1.25 on the back of better-than-expected ZEW Economic Sentiment data out of Germany and the Eurozone.

German ZEW Economic Sentiment (November): 11.5
Forecast: 0.9
Previous: -3.6
germany zew economic sentiment

(click to enlarge; source: forexfactory.com)

Eurozone ZEW Economic Sentiment (November): 11.0
Forecast: 4.3
Previous: 4.1

Let’s focus on the German data. GDP data yesterday showed that the country staved off recession in Q3. Today’s data is showing a rebound in sentiment for the first time in 2014, which has been a consistently down year for sentiment. It will take more than a simple rebound in sentiment data to convince the ECB that QE is unnecessary, but it definitely helps add to the basket of factors that might keep market expectations of QE low and give the EUR some resilience after several months of decline.

For example, if the EUR/USD continues above 1.2577 after today’s sentiment data, we should again expect sellers in the 1.26-1.2635 area.

EUR/USD Daily Chart 11/18
eurusd daily chart 11/18

(click to enlarge)

The daily chart shows that around 1.26, we have a falling trendline from October’s high, as well as a previous support area to be tested as resistance. We might need some soft data from the US this week for the pair to break through. There might not be much fundamental factors from the Eurozone of much significance, so it will likely be a USD story for EUR/USD the rest of the week.

1.2450:
Now, the 1.2450 level will be key. If EUR/USD retreats and breaks below 1.2450, we should be looking for a bearish continuation scenario, at least to test the 1.2360 area before opening up the 1.23 handle.

If there is a break above 1.2635, and then price comes back and holds above 1.2450, preferably above 1.25, then we might have further upside risk toward 1.27.

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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.