steve.jarvis's picture

A fresh look at the longer-term EURUSD Technical outlook

Given the speed and extent of the EUR/USD retreat from 1.3989 in May, a 31 month high, now is a good time to take a fresh look at the longer-term charts. Could for instance the recent slide mark the start of a really quite significant decline lasting maybe another 6-12 months? Or might it just be that this is a natural correction lower following an almost 2 year recovery phase from 1.2047?

Typically when analysing longer-term Currency trends I will refer to a 10 year chart with monthly bars. I add 12, 60 & 120 month moving averages and an MACD indicator. I also add trend lines and channels for market direction and consider adding Fibonacci retracements and projections to help identify possible targets and support / resistance levels.

EUR/USD looks very interesting at the moment, due to the fact that there are a number of conflicting signals.

First the case for the bears.

  1. Possibly the most striking thing the chart displays is a broadly 5 to 6 year bearish channel. I have drawn two courses for this channel, one connecting the 2008 & 2014 highs, the other connecting the 2008 & 2010 lows. The channel drawn off the highs, which is arguably the more valid of the two, takes a lower and slightly steeper course. The two channel bases currently intersect around 1.0740 & 1.0250.
  2. The latest three dark candles. In candlestick theory this represents "three black crows", a bearish pattern.
  3. The recovery from 1.2047 & 1.2754 lows in 2012 & 2013 failed to take out former resistance from 2010 at 1.4280. All the while the market remains below there, the rise off 1.2047 & 1.2754 can be classed as corrective following the decline from 1.4940 in 2011
  4. The uptrend line connecting 2012 & 2013 lows at 1.2047 & 1.2760 has been breached.
  5. The market is now below all three of the 12, 60 & 120 month moving averages. Furthermore, the 12 & 60 month lines have started to decline. The 120 month line is still edging higher, but the rate of ascent has slowed from 12 to 8 to 4 pips over the past three months (and may start to fall within the next 1 to 2 months).
  6. MACD looks to be edging lower, with the 2012 / 2013 trough having been deeper than the recent high, indicating slightly more underlying bearish than bullish trending pressures.

The case for the bulls.

  1. EUR/USD is still well above the base of a potential 2 year recovery bull channel. The base is currently at 1.2549, rising .0019 per month.
  2. A 9 year uptrend line connecting 1.1644, 1.1881 & 1.2047 lows (2005, 2010 & 2012) is intact. This is currently at 1.2101, rising .0004 per month.
  3. Although MACD is edging lower, it is still above both the signal line and the pivotal zero line.
  4. The 2013 higher low around 1.2754 / 60 has not yet been breached.

On balance there appear to be more bearish than bullish indications at the current time. My biggest concern is the "three black crows" candlestick pattern which could indicate an impending break below the 2013 lows at 1.2754-60 towards 1.2550-1.2628 (base of 2 year projected bull channel / former key low from January 2012). From around there a recovery could be mounted, but the danger is that this will be short-lived and herald the start of a potentially more significant decline for the following 6-12 months in the direction of the 2005 low at 1.1644.