Euro Weakens Across the Board, Channel Support Broken
Euro falls across the board entering into US session and breaks near term channel support against both dollar and yen. In particular, the EUR/JPY is weighed down by comments from German Finance Minister that the yen is on a “sustainable recovery course” and exchange rates should take into account Japan’s economic recovery. This is taken as a complaint from politicians that the euro strength is hurting German manufactures. There is additional pressure on the common currency after data showed German industrial production dropped -0.1% mom in Mar and rose 7.7% yoy only, comparing expectation of of 0.0% mom, 8.2% yoy.
Technically speaking, as pointed out before, risk of reversal is high in both EUR/USD and EUR/JPY. The breaking of the short term channel support is a warning that recent uptrend is already completed. Though it’s too early to conclude whether the medium term up trend has ended too, risk will now be on the downside and further decline is likely in near term.
EUR/USD
Daily Pivots: (S1) 1.3585; (P) 1.3606; (R1) 1.3622;
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EUR/USD failed to take out mentioned 1.3622 resistance and reversed by falling sharply and breaks 1.3582 minor support and short term rising channel support (now at 1.3561 successively. At this point, further fall is expected to follow as long as EUR/USD stays below 1.3593 minor resistance. As discussed before, sustained break of the short term channel support will warn that whole rally from 1.2856 has already completed at 1.3681 with bearish divergence condition in 4 hours MACD and RSI. Deeper decline should then be seen towards 1.3406/10 support first. On the upside, above 1.3593 will turn intraday outlook consolidative. But it will take a break above 1.3622 resistance to turn short term bias back to the upside for 1.3681 high. Otherwise, further decline is still in favor.
In the bigger picture, with 1.3668 target met, risk of medium term reversal is also increasing. As discussed before, medium term up trend from 1.1639 is interpreted as having first move completed with three waves up to 1.2978, subsequent sideway consolidation completed at 1.2483. Rise from 1.2483 is treated as resumption of the whole up trend from 1.1639. With such interpretation we’d expect risk of medium term reversal to increase significantly as EUR/USD enter into resistance zone between 1.3668 and 100% projection of 1.1639 to 1.2978 from 1.2483 at 1.3822. Hence, focus is now on reversal signals.
On the downside, break of the short term rising channel support will indicate the rise from 1.2865 has likely completed. Break of 1.3406/10 support will confirm such case and deeper decline should then be seen to 55 days EMA (now at 1.3401). More importantly, with bearish divergence condition in daily MACD and RSI, this will be the first warning that the rise rally from 1.2483 has also completed, and thus, so is the whole up trend from 1.1639. Focus will then be back to medium term rising channel support (now at 1.2991).
But still, note that, as long as the short term rising channel remains intact, rise from 1.2865 is still in good shape, and thus, EUR/USD’s rise could continue to extend further to medium term rising channel resistance (now at 1.3824) and mentioned 1.3822 projection target.
Read full report (EUR/USD, GBP/USD, USD/CHF, USD/JPY, EUR/JPY) here.
Shing-Ip Tsui is the founder and CEO of www.ActionForex.com. ActionForex is set up with the aim to empower individual forex traders by providing insightful contents. Analysis reports, live pivot points on majors and crosses, etc are provided with collection of carefully selected educational articles and free trading ebook downloads.