EURUSD: euro slumps to reversal zone at 112 – 135 degrees

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On Wednesday the 7^th of February, trading on the euro closed down. The EURUSD pair fell from 1.2405 to 1.2246 (-159 pips). The main driver behind the dollar’s surge was the rise in US bond yields coupled with the extension of US government funding until the 23^rd of March. This downwards dynamic on the EURUSD was enough to sink the EURGBP cross as well.

Day’s news (GMT+3):

• 10:00 Germany: trade balance (Dec).
• 12:00 Eurozone: economic bulletin.
• 15:00 UK: BoE interest rate decision, asset purchase facility, BoE quarterly inflation report.
• 15:30 UK: BoE Governor Mark Carney’s speech.
• 16:30 USA: initial jobless claims (2 Feb).

Fig 1. EURUSD hourly chart. Source: TradingView

My prediction of a reversal model failed. The news surrounding the dollar as well as a renewed decline on the euro crosses combined to block buyers from opening new long positions. The bears ended up pushing the price into the reversal zone between the 112^th and 135^th degrees. The euro’s decline subsided as it reached the D3 MA line.

Yesterday, sellers broke the 1.2295 support. The technical picture on the daily timeframe is looking bearish, but the 1-hour and 4-hour timeframes show the euro recovering by the end of the week.

Considering that yesterday’s drop came to around 150 pips, a good initial target for buyers would be to return to the trend line at 1.2358 (90 degrees). If the daily candlestick closes above 1.23, this would create a buy signal. If the hour closes below 1.2238, however, this will scupper any growth prospects.

I’m relying on my forecast to come good before the week is out.