What are the longer term technical chart levels for the EURUSD?

On Friday, I did a look at the big picture for the EURUSD SEE “Technical Analysis: The big picture look at the EURUSD“.

In that report, I outlined a little history of EURSD and the technical levels to target and why they were important. I thought I would re-post some of the comments from the post for those who did not read it. They are still relevant.

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With the FOMC more hawkish and the ECB more dovish, the fundamental backdrop continues to support a lower EURUSD. If that bias continues, what about some longer term thoughts? What are the longer term charts saying?

The EURUSD came into existence in January 1, 1999 at 1.1743. The first month of trading in the pair reached a high at the 1.1860. The close that month was at 1.1368 and it was not until the month of May 2003 before there was another close above the 1.1743 level (the close was at 1.1774 that month). It took an additional 6 months – in November 2003 – before the price was able to extend and close above that 1.1743 level again.

Since that time (in November 2003), the price on a monthly basis, has traded below the 1.1743 level during two successive months in November/December 2005, but there have been zero – yes zero – closes below the introduction price since the November 2003 break higher.

The global debt crisis, then the European sovereign debt crisis in 2010 could not push the price below the opening level . The low during that period came in June 2010 at 1.1876. The chatter at the time was focused on parity for the pair. It was not to be.

The downside targets for the EURUSD.

The downside targets for the EURUSD.

WHERE DOES THE CURRENT PRICE STAND HISTORICALLY.

At 1.2537 (this was the level on Friday – the level is currently 1.2395),

  • The price is currently still around 800 pips (now 652 pips) it is above the EURUSD opening level of 1.1743.
  • From the low of 0.8225 reached in October 2000 to the high of 1.6037 reached in July 2008, the price is above the 50% midpoint of the all-time range at the 1.2131.
  • The price is below the 2013 low at the 1.2746. This week, at the highs before the more hawkish FOMC statement, the price closed above the 1.2746 level on 4 separate hourly bars. The high this week extended to 1.2769 before tumbling lower.
  • Last month the price fell below trend line support (see monthly chart above) and stayed below this month.

Next week the ECB meets (the met today) and the expectation is for no change, but the potential exists for additional action and/or a more dovish press conference (it was more dovish). The US Unemployment will be released on Friday. The expectations are for a NFP to rise by 234K vs 248K last month. The Initial Claims 4 week average is at the lowest level since 2000 (it remained strong today)

The bias for the EURUSD should continue to be to the downside.

WHERE ARE THE DOWNSIDE TARGETS?

Assuming the trend continue, where are the next downside targets?

Looking at the monthly chart above, the major lows become targets. They include (see numbered levels in the monthly chart above):

  1. 1.2457 – This is the low from 2009 and also a low price from 2006
  2. 1.2329 – low from 2008
  3. 1.2131 – 50% of the all time trading range
  4. 1.2041 – low from 2012
  5. 1.1876 – low from 2010
  6. 1.1743 – the EURUSD opening value from January 1, 1999
  7. 1.1639 – low from 2005

I would think that the 1.2131 should provide some good support on the first test and also a tough level to get below. If done, however, I would think that the market will start to sniff the post crises low at the 1.1876 and the 1.1743 level will also be a magnet attraction.

Now, the above is assuming the bears remain in control, and understand that the move will not be in a straight line if it does go (hence tune into ForexLive.com!).

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That was the view on Friday. and the market did what I thought it would do.

Now what?

The price still has not reached what I viewed as the first big targets as outlined above at the 1.2457 level (the low from 2009 and also a low price from 2006). However, that may have something to do with the space the pair had to travel today. In other words, the pair did not move much from Friday’s level and the 147 pips it did today was what I thought we might get out of today (see post from earlier today). There does tend to be a limit.

Nevertheless, with an as expected employment report tomorrow, the move away from the consolidation trading that characterized October, is in the rear view mirror and an open road lower for the EURUSD can be eyed. That is as long as the technical bias remains bearish.

WHERE IS THE RISK NOW?

Where is “line in the sand risk” for the pair now?

EURUSD has risk defined against the 38.2%-50% retracement of the move down today.

EURUSD has risk defined against the 38.2%-50% retracement of the move down today.

Looking at the hourly chart above, if you were to put a Fibonacci Retracement from the high today to the low today, the 38.2-50% of the trend move lower comes in at 1.24407 and 1.24582 respectively. The low from Monday comes in at 1.2438 just below the 38.2% retracement level at 1.24407. The low from yesterday’s trading comes in at the 1.24565. This is just below the 50% level at 1.24582. The “Correction Zone” from today’s move corresponds with lows for the week. Nice.

I would expect that this would be a RISK defining area on corrections now. Stay below the bears remain in control. Move above and there is something I don’t see. On a move higher we should go up and test the 100 hour MA (at 1.2500 currently – oh that old chestnut -ie. the October 3, 2014 low).

What might I not see? I guess a surprisingly weak employment report. However, given the employment preview indicators we have seen this month including ADP (230K), Employment component on ISMs (Manufacturing 55.5 vs 54.6, Non Manufacturing 59.6 vs 58.5), and Initial Claims (4 week MA lowest since 2000), a surprisingly weak employment report does not seem in the cards. Does it? The trend lower should continue.

SUMMARY

Although this commentary is a little old and a little new, trading is about constantly reevaluating the landscape for land mines and reevaluating the risks as well. The ECB played out. The price action has so far done what was expected. The Unemployment is on tap next with expectations to keep the fundamental picture looking more bearish for the EURUSD.

What about the technicals? The charts are also bearish and risk can be defined against some broken levels that are now in our rear view mirror. As a result, it remains a matter of following the steps until the time the market says, “you have crossed the line in the sand. It is time for a bigger correction/reversal higher”. Until then, the bears remain in control and there is room to roam.