- EUR/USD's recovery attempt has been thwarted at the 1.1180 double-top.
- The world's most popular currency pair has failed to recover from losing uptrend support.
- Moving averages on the daily chart are pointing to further falls.
Are the US and China close to signing a deal? Will the Federal Reserve cut interest rates once again? What will Christine Lagarde, the new President of the European Central Bank, do for the old continent? These fundamental questions and others have been moving euro/dollar – and perhaps too much.
The high level of noise in the world's No. 1 currency pair makes it "hard to see the forest from the trees." The broader picture is that the US economy is outperforming the 19-country euro area one. And the following question – more substantial question for traders – is: what is priced in?
EUR/USD may be enjoying an uptrend in the past few days, but this may be a rise before the fall.
There were reasons to believe that euro/dollar's prices already reflect this economic divergence. However, looking at the greater scheme of things – the daily EUR/USD chart – shows that the common currency has more room to fall.
Here are three technical reasons that support the bearish outlook:
1) Decisive double-top
EUR/USD has been enjoying a recovery from the lows of 1.0879 to 1.1180 – no fewer than 301 pips within three weeks in October. However, that level proved insurmountable. The second attempt to break higher in early November already created a double-top.
Contrary to previous cases where euro/dollar made false was rejected at resistance only to surge afterward – this barrier proved robust. EUR/USD has been drifting away from that level.
2) Uptrend support is lost
The second fallback at 1.1180 has also resulted in piercing through the uptrend support line. That convincing cushion was lost in a determined manner. Since losing it, EUR/USD has failed to get closer to the line – nor the 1.1115 level where it lost that level.
Rising alongside that uptrend was accompanied by upside momentum, which has also disappeared and turned negative.
3) SMAs paint a gloomy picture
While EUR/USD has managed to bounce above the 50-day Simple Moving Average, it is currently capped by the 100-day SMA at 1.1100. More importantly, the 200-day SMA continues clouding the outlook for euro/dollar bulls and ominously converges with the 1.1180 level mentioned earlier.
How low can it go?
Euro/dollar is not only the world's most popular currency pair but perhaps also the most stubborn one. While any upside is limited, the downside grind may be slow as well. Support awaits at the 50 SMA, which hits the price the 1.1040. It is followed by 1.0990, the November's low, by the double-bottom at 1.0925, and finally by the 2019-low of 1.0879.
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