Euro Short-term Outlook: EUR/USD Rebound Faces Critical Test After Trend Break

Euro Technical Outlook: EUR/USD Short-term Trade Levels

• EUR/USD has rebounded more than 1.4% from the October lows following a sharp decline from the September high.
• The break of the September downtrend has improved the near-term technical picture, although bullish momentum remains relatively subdued.
• A well-defined weekly opening range has developed beneath initial resistance, keeping the focus on a decisive break for directional guidance.
• A sustained advance through resistance would strengthen the case for a more significant low and expose higher recovery objectives.
• Eurozone and U.S. PMI releases headline this week's event risk ahead of next week's Fed and ECB rate decisions.
• Resistance 1.1276, 1.11342/60 (key), 1.1412- Support 1.1156, 1.1110/30 (key), 1.1032

EUR/USD is attempting to build on last week's sharp recovery, but the initial rebound has lost momentum as buyers confront the next major technical hurdle. The near-term structure has improved, although the broader decline from the August highs continues to weigh on the outlook, leaving the bulls with more work to do before a durable reversal can be confirmed. With the weekly opening range established beneath resistance, the next directional move could provide important guidance heading into a pivotal stretch of central-bank event risk. Preliminary European and U.S. PMI readings on Friday will offer the next potential catalyst ahead of next week's highly anticipated Fed and ECB rate decisions. Battle lines drawn on the Euro short-term technical charts.

Euro Price Chart – EUR/USD Daily

Chart Prepared by Michael Boutros, Sr. Technical Strategist; EUR/USD on TradingView

Technical Outlook: In last month’s Euro Short-term Technical Outlook we noted that EUR/USD was, “approaching pivotal support near the low close of the year, and the focus is on a reaction at this key inflection zone. From a trading standpoint, rallies would need to be limited to 1.1419 IF price is heading lower on this stretch with a daily close below 1.1355 needed to fuel the next leg lower.” Euro broke through support four-days later with the decline extending more than 4.6% off the September high before rebounding off key support last week at 1.1110/30. This region is defined by the 38.2% retracement of the broader 2022 advance and the 50% retracement of the 2025 rally. The recovery has extended more than 1.4% off the October lows and the focus is on whether the bulls can force a breakout above the median line to suggest a more durable low is in place.

Euro Price Chart – EUR/USD 240min

Chart Prepared by Michael Boutros, Sr. Technical Strategist; EUR/USD on TradingView

Notes: A closer look at Euro price action shows EUR/USD trading within the confines of a proposed ascending pitchfork extending monthly low with the weekly opening range taking shape just below the median line. Support rests with the yearly low-day close (LDC) at 1.1156 which converges on the lower parallel over the next few days. Key support remains unchanged at 1.1110/30 and a break / daily close below would be needed to mark resumption of the broader August downtrend. Subsequent support objectives rest at the 2020 low-month close (LMC) at 1.1032 and the 2024 March high close / July high at 1.0947.

Initial resistance is eyed at the 2023 swing high near 1.1276. Note that the median line converges on this level into the close of the week. Key resistance is eyed at the 38.2% retracement of the August decline and the June low-day close (LDC) at 1.1342/60- look for a larger reaction there IF reached. A breach / daily close above this threshold would be needed to suggest a more significant low is in place, and a larger trend reversal is underway. Subsequent resistance objectives are eyed at the 50% retracement at 1.1412 backed by the 61.8% retracement and the August low at 1.1483-1.15.

Bottom line: Euro has rebounded off major support last week with the recovery now approaching initial resistance. From a trading standpoint, losses would need to be limited to 1.1156 IF price is heading higher on this stretch with a close above 1.1276 needed to fuel the next leg of the recovery.

EUR/USD event risk is concentrated in Thursday’s euro-area flash consumer-confidence release and Friday’s preliminary October PMIs, with the latter offering the clearest read on whether the recent improvement in activity is holding. U.S. jobless claims, the October flash PMIs and final Michigan sentiment survey are also due, while Fed officials remain in blackout ahead of next week’s decision. The ECB is widely expected to leave rates unchanged next Thursday, so the focus will be on whether policymakers acknowledge the renewed inflation risk from higher energy prices or retain a softer growth bias. Stay nimble into the rate decisions and watch the weekly closes for guidance. Review my latest Euro Technical Forecast for a closer look at the longer-term EUR/USD trade levels.

Key EUR/USD Economic Data Releases

 

--- Written by Michael Boutros, Senior Technical Strategist

Follow Michael on Twitter @MBForex