EUR/USD Technicals: Downside to Commence Following Position-Adjustments

The euro to dollar exchange rate (EURUSD) is consolidating above the 1.07 support level but faces a challenging outlook as key technical indicators warn of potential declines ahead.

The EUR has been under pressure from a bullish US dollar with high expectations of a raised interest rate in December, political uncertainty prompted by the recent ousting of the Portugal centre-right wing government, and the potential for more monetary easing from the European Central Bank.

However, the pair has been able to remain fairly buoyant trading around 1.0760, although dipping as low as 1.0672 after a great US October job report.

Overnight the pair peaked to 1.0780 but settled at around 1.0740 at the opening bell in Europe this morning.

"EURUSD’s rebound from below 1.07 this week appears to be related to position-adjustment more than a fundamental change in views on the EUR or USD outlook and gains are putting even greater distance between spot and our estimated equilibrium spot rate of around 1.01," says Shaun Osborne at Scotiabank.

Bearish Week Ahead For EUR

Steven Knight, Research Analyst for Blackwell Global has read the charts and believes it is a matter of time before the euro succumbs to downside pressures:

"Technical analysis is depicting a negative sentiment for the pair as the 55, 30, and 20 EMA’s are all declining and signalling further falls to come.

"However, RSI has trended strongly lower and now remains firmly entrenched within oversold territory. Subsequently, expect to see a small retracement to relieve the pressure on the indicator, prior to further bearish falls.

"In addition, the current pricing level coincides with the 76.4% Fibonacci retracement level and a downward breach of this level could invalidate the ranging trend from March."

"Subsequently, look for short opportunities around the 1.0740 level with downside targets towards 1.0650 and 1.0600.

"However, be mindful of the risk of volatility as the US Unemployment Claims figures fall due, as the market looks for hints as to future policy from the Federal Reserve. Any surprises within the US economic data, that detract from the Fed’s case could provide added buoyancy to the pair."

Thus, market conditions are ripe for an impending bearish period for the EUR and we expect to see the EUR/USD pair fall to lows not seen since early March.