October’s Rally: The EUR/USD has been rallying in October, from a low on the year at 1.25 up to 1.2887 last week. It has since been trading sideways roughly between the 1.2705 and 1.2850 area. As we get into the 10/21 US session, we are witnessing strong bearish attempts relative to the bullish attempts, at least judging from the 4H candles. The latest price action is a retreat again from 1.2850 and price is now heading toward that 1.2705 low.
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1.27 and the Bearish Breakout Scenario: Note that there is a cluster of support around the 1.27 handle, including the above-mentioned support pivot, a previous resistance pivot, and October’s rising trendline. A break below 1.2685 would also clear below all the 200-, 100-, and 50-period simple moving averages (SMAs). This would be a bearish continuation signal, especially if the 4H RSI also breaks below 40 to show loss of October’s bullish momentum.
Bullish Scenario: If EUR/USD holds above 1.27, the pressure remains toward the local highs in the 1.2850-1.2887 area, as well as the 1.29 handle. Above that, the 1.30 psychological handle will come in play.
Bearish in the Long-term: Whether the short-term outlook is bearish from a break below 1.27 bullish with a hold above 1.27, the long-term outlook appears to be bearish when looking at the weekly chart, at least going back to 2012. We can see that the current trend has room until the 2012-low at 1.2042. So, if price breaks below 1.27, the EUR/USD has “bearish winds” that threatens to push it not only to the 1.25 low but even lower. If price instead pops up above 1.29, then we should be very prepared for sellers around 1.30.
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1.30 and a Falling Trendline: For the short-term bullish outlook, we can also see that if price approaches 1.30, it will also be nearing a falling trendline from the 1.3993 high on the year, another reason to believe there will be sellers. Also, the weekly RSI would be clearly above 30 by then, and would no longer be “oversold”.
The downside risk in the long-term is clear, but in the short-term let’s see how the EUR/USD reacts to the 1.27 area.
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