EUR/USD Technical & Fundamental Outlook

Suggestion for Trade: Sell on breakout through channel support (currently 1.3665), stop loss above trendline, target 1.3552

EUR/USD fell sharply yesterday after Fed decision to taper monthly asset purchase program by $10 billion amid impressive performance by labor market and overall growth optimism. The pair closed with bearish engulfing candle off a resistance level around 1.3810 which is always considered a good indication of bearish reversal.

Major Support & Resistance Levels

At the moment of writing during London session, the pair is hovering around 1.3678 (still inside upward trendline channel) where it is likely to find an immediate support at 1.3665 (channel support) ahead of 1.3613 (38% fib level) then 1.3578 (23% fib level) and finally 1.3552 (50% fib level). A break and close below this support area may push euro into relatively stronger bearish trend targeting 1.3490 and 1.3400.

On upside, immediate resistance is seen around 1.3693 (23.6% fib level + trendline resistance ahead of 1.3810 (yesterday’s high). A break and close above this resistance will be highly bullish for euro targeting 1.4000.

Technical Indicators

MACD is showing strong negative divergence on hourly timeframe which suggests a long dip might be in play very soon. Relative Strength Index (RSI) is neutral on daily timeframe which means long moves can be expected. Hourly 55 MA is well below 100 MA and 200 MA showing significant signs of weakness.

Fundamental Situation

US Dollar should gain some strength today in US session after yesterday’s land mark development. Thus we may expect a long due correction in EUR/USD during forthcoming sessions. It is pertinent that ECB is mulling over to make use of some harsh monetary policy tools such as negative deposit rates, quantitative easing, or even another rate cut in order to achieve growth and inflation targets for Eurozone. In this context, if EUR/USD go for some long dips, it will be very much in-line with both the US and Eurozone fundamentals.