The EUR/USD has fallen quite sharply from its 1.0903 March peak and is currently trading at the level of a trendline at 1.0600.
The trendline appears to be ‘holding up’ the exchange rate but little more - bullish recovery drives have been limited over the last three days and the exchange rate still looks vulnerable to more weakness.
The pair has also formed an incomplete measured move or flag down from the March highs as noted in our weekahead forecast. The second leg of the move should extend to 1.0500 to match the length of the first as is expected given financial market's widespread adherence to the principle of 'equality'.
An eventual break below the trendline and a follow-through move lower is still our base case expectation, with a break below the 1.0568 lows indicating a probable continuation lower, to a target at 1.0500.
The target for the follow-through is generated by extrapolating the height of the move prior to the trendline – labelled ‘x’ on the chart – down from the break, in a move labelled ‘y’. This gives a rough target of 1.0500.
The S1 monthly pivot – a level which will prove to be an obstacle to bears – is situated not far below at 1.0468.
Minor Rebound ahead of Weakness
Analysts at Commerzbank also retain a bearish stance, arguing the current bounce is likely to be short-lived.
“The Euro is seeing a small bounce very near term – we look for this to be pretty tepid and should ideally stall circa 1.0645/70.
Failure at nearby Fibonacci support at 1.0555 should trigger weakness to the 1.0494 the March low then 1.0352/40 the January low,” said analyst Karen Jones in a note to clients seen by Pound Sterling Live.
The rebound may not quite be over yet, they say, however as the move down in exhausted on intraday hourly charts, after reaching a 13 count on the Demark indicator.
“We note the 13 count on the intraday chart and would allow for a very near-term rebound ahead of further losses,” added Commerzbank.