Weekly Euro Forecast:
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Weekly EUR/USD Trades Neatly Towards LT Channel Support
In the previous weekly forecast the long-term support level proved to be one of significance as EUR/USD traded lower, towards channel support – the very level in focus. In the event prices close in the red after the Jackson Hole speeches on Friday, it would represent the sixth straight week of declines for the pair at a time when US yields keep the US dollar supported.
Now that the pair has reached this previously respected level – what next? Considering the diverging economic data between the US and EU, there isn’t anything to suggest a reversal here. The ECB has communicated a cautious outlook from those within the governing council which could sway the balance of probabilities in favor of a ‘no hike’ outcome at the September rates meeting if further disappointing data makes its way across the newswire. Speaking of data, next week German and EU inflation data for August is due. ECB officials will be looking for reasons to ease off on rate hikes and will be hoping for core inflation to show encouraging signs of easing.
EUR/USD Weekly Chart
Source: TradingView, prepared by Richard Snow
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How to Trade EUR/USD
The daily chart reveals the extent of the selloff ever since reversing off the 61.8% Fibonacci retracement of the major 2021 – 2022 decline. Extended upper wicks throughout the decline tells a story of bulls attempting to resist the selloff but ultimately buckling under the sheer weight of bearish momentum.
The short-term move from here is complicated due to the presence of the 200 day simple moving average (SMA) underneath price action. However, signs of a bullish reversal have not presented themselves, therefore the long-term trend filter may pose little resistance to a continued slide in EUR/USD.
EUR/USD Daily Chart
Source: TradingView, prepared by Richard Snow
EUR/JPY BREAKDOWN frustrated by choppy price action
The recent longer-term channel breakdown revealed an overall decline in bullish momentum around 158.00 as bulls struggle to trade above the level with any lasting conviction. Since then, prices have traded lower, even breaking beneath channel support in a move that could be supported by the changing outlook from within the ECB.
Ahead of Lagarde’s speech at Jackson Hole today, ECB ‘sources’ expressed a view that more members of the committee are heeding warnings of low or flat economicgrowth, faltering wage growthand weak Chinese data.
Lagarde may not wish to give away too much and will in all likelihood remind everyone of the data dependent approach before each meeting when she delivers her address. A 25-bps hike is a coin toss as far as market expectations are concerned, allowing for sizeable repricing risk further down the line. Odds are however likely to evolve closer to the September 14th meeting.
A real test of downside potential would be the prior swing low around 155.50 followed by 153.45. Immediate resistance appears at 158, followed by 159.50. The lack of yen impetus adds to the frustrating sideways trading – something that could persist into the coming week as BoJ policy is not expected to change until Q3 next year at the earliest according to a poll from Reuters.
EUR/JPY Daily Chart
Source: TradingView, prepared by Richard Snow
of clients are net long. of clients are net short.
| Change in | Longs | Shorts | OI |
| Daily | -8% | 5% | 2% |
| Weekly | 5% | 6% | 6% |
— Written by Richard Snow for DailyFX.com
Contact and follow Richard on Twitter: @RichardSnowFX