Near-Term Forecast Bearish for the EUR

Key Points:

• Bullish pennant structure taking shape.

• Parabolic SAR retains bearish bias.

• Long-term downtrend remains in place.

Despite a recent spate of solid gains and what is likely to be another bullish start to the week, the EUR is looking ready to have some near-term bearishness instore. Specifically, a move to the downside as this week progresses should help to reveal the nascent bullish pennant which has been forming over the past number of weeks. As a result of this formation, we expect to see a consolidation phase dominate the pair’s movements over the proceeding sessions.

First and foremost, looking at the Euro’s behaviour over the past few weeks reveals that the pair is now moving into a fairly convincing bullish pennant structure. As shown below, the corrective ABC wave that started mid-July formed the first leg of this pattern and, since the wave’s completion, the EUR has begun to form into a pennant. Also worth noting, the upside constraint of this pennant falls in line with the long-term downtrend which began in May this year.

As a result of this pennant structure, the near-term forecast for the pair is understandably bearish as we move forward. This being said, as a result of some rather bullish EMA activity, we could see the EUR have another go at testing the upside constraint of the pennant prior to reversing in earnest. However, it remains unlikely that any potential bullishness here results in a breakout and this comes largely as a result of some strong resistance being supplied by the 23.6% Fibonacci retracement.

Once a reversal has begun, the EUR should retrace in accordance with the current Parabolic SAR bias and move back to support at around the 38.2% or 50.0% Fibonacci levels. A move to the 50.0% level would coincide with the downside constraint of the pennant and, as a result, would likely be the lowest we can expect to see the EUR slide in the short to medium-term.

From a fundamental perspective, there is a plethora of both US and Eurozone results due to be posted in the coming week. Consequently, there is likely to be some increased volatility surrounding this pair which could upset the current technical forecast. Additionally, further statements are due from both Mario Draghi and Janet Yellen this week which could lead to some fairly substantial shifts in sentiment.

Ultimately, due to its consolidating pennant structure, we can expect to see a slip occur for the EUR shortly. However, despite this rather strong technical bias, keep an eye out around the key levels mentioned above as fundamentals will play a role in determining the pair’s movements. This will beespecially evident around the scheduled remarks from Yellen or Draghi which have the potential to either spark an upside breakout or kick start the predicted tumble.