Image © Adobe Images
The EUR/USD exchange rate is under pressure again on Tuesday having fallen 0.34% from the day's opening level to 1.1725 at the time of writing. Analyst and technical forecaster Richard Perry of Hantec Markets says there is a growing risk of a downside break.
When EUR/USD breached the four month uptrend so decisively last week, the suggestion was that the bulls were struggling.
Yesterday’s decisive sharp negative candle (with a -75 pip downside move) confirms that this is an ongoing range between 1.1695/1.2010.
There is also now a growing threat within this range that there would be a downside break.
For eight weeks there has been a deterioration in the RSI, peaking at lower levels and turning increasingly corrective.
Now decisively below 50 and the lowest since May, along with corrective MACD and Stochastics, the pressure is mounting on 1.1695/1.1750 key support band.
The support of 1.1750 has had a couple of intraday breaches now without a closing break. However early downside again today is threatening again and a close below 1.1750 would be a five week low.
A close under 1.1695 would complete a big top pattern and imply around -300 pips of downside.
The hourly chart shows initial resistance 1.1775/1.1800 area now which is a barrier to a recovery. A failure to reclaim this lost ground will simply increase the growing pressure on the key medium term support band 1.1695/1.1750.
There has been a dramatic shift in sentiment early this week as risk appetite has taken a huge step back. Markets are reacting to the perception that Europe is having to deal with significant second wave COVID infections with renewed restrictions.
This comes at a time where Congress continues to drag its feet over a US fiscal support package.
Also we can add into this, a big money laundering scandal hitting the banking sector, just for good measure. This all adds up to a shift into safe haven forex, and equities being sold off sharply. The dollar tends to benefit in times of elevated market fear, and this is no exception.
The rebound in the Dollar Index is now testing the key resistance band 93.50/94.00, something that equates to the support around $1.17 on EUR/USD. With dollar strength and concerns over the demand outlook hit the commodities complex with oil and silver sharply lower.
What was also interesting was a return to strong selling on gold, apparently not a safe haven of choice right now. Back in March when equities were selling hard, gold was also sold amidst portfolio liquidation. This is something to keep an eye on in the coming days if equities continue to decline.
The next few days will also be focused on Fed chair Powell, who testifies before Congress on.