EURO : Big Resistance

(Sun, 13 Dec 2020). The Euro was in the spotlight for Thursday’s ECB rate decision. But both EUR/USD and EUR/JPY put in Dojis for the week after running into big areas of resistance.

This week brought the widely-watched ECB rate decision along with the expected increase in stimulus. Despite that additional stimulus announcement, the Euro gained in the immediate aftermath of the ECB. Those gains were unable to hold, and prices pulled back ahead of the weekly close.

It’s been a busy week around the single currency and while there were a couple of different themes of note, the net outlay has been rather subdued as this week’s price action in EUR/USD has amounted to a doji…

Thursday marked the well-awaited ECB rate decision in which the bank was expected to announce an increase to their stimulus program. And, as expected, they did; but this was perhaps underwhelming as the net response from that event was a stronger Euro. But – as discussed in the aftermath of that rate decision/press conference, EUR/USD was treading on troubled ground, as a zone of confluent Fibonacci levels came into play last week and have since helped to hold the highs from the previously strong bullish breakout.

At this point, that resistance remains, and for this week I wanted to start off with the monthly chart of EUR/USD to highlight the pertinence of the current zone.

EUR/USD MONTHLY PRICE CHART

Going down to the weekly chart to look at that doji highlights the impact of that confluent zone of resistance so far. There’s two major long-term levels within 33 pips of proximity, and each has exhibited some element of pull with near-term price action in the pair.

This, combined with the doji that’s printed on the weekly chart, brings to question continuation potential for the bullish trend that helped to push the pair up to a fresh two-year high last week.

Doji formations are shows of indecision, and the fact that this showed up after a really strong breakout brings to question the continuation potential of that topside move.

EUR/USD WEEKLY PRICE CHART

Drilling down to the daily chart highlights the fact that this zone has now held resistance in the pair for seven consecutive trading days. Notice how each of the daily bars below show some element of reaction as indicated by topside wicks at this zone, and this has been taking place since December 3rd. This can keep the door open for near-term reversal potential in the pair; and if prices can finally muster the strength to press the two-year-high, bullish breakouts could then come into favor.

But, given the prolonged battle at resistance, the pair may need a healthy pullback, perhaps as deep as the 1.2000 level, before buyers can post that breach of this big zone that continues to loom overhead.

Another possible item: The past two weekly bars satisfy the first two requirements for the build of an evening star formation. For that formation to come to fruition, next week would need to print as a loss that takes out at least half of the gain from the past week; which could open the door for deeper reversal potential.

EUR/USD DAILY PRICE CHART

Similarly, EUR/JPY showed a recent bullish breakout that propelled the pair into some longer-term resistance. That resistance has constrained bulls so far, but there may be more attractive scope for bullish drivers as we’ll look at a little later.

The longer-term resistance in EUR/JPY comes from a long-term trendline that can be found by connecting 2014 and 2018 swing highs.

EUR/JPY MONTHLY PRICE CHART

This trendline projection started to come back into play on December 2nd; and since then, we’ve seen this impart some impact on near-term price action for seven of the past eight trading days.

As mentioned a little earlier, there may be scope here for Euro bulls that could make for a more amenable backdrop than what was looked at previously in EUR/USD. While EUR/USD remains perilously close to that longer-term resistance, the pullback in EUR/JPY on Friday pushed prices down to a familiar spot of support – the same that was in play ahead of the ECB rate decision.

This can, at the least, allow for some anchoring for risk management for those that are looking at scenario of Euro-strength.

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