Euro Dollar Confluence Support Separates a Pullback From a Reversal

Six higher weekly closes out of seven, and a third consecutive monthly advance in progress. That run in the euro dollar started from confluence support, the zone where several independent technical levels land in the same area of price and reinforce each other, and it is the reason one region of the chart carries more weight than any individual line drawn across it. In the euro dollar specifically, a retracement of the advance off last year's low, a prior pivot low, and the median line of a multi year ascending formation all sit in the same neighborhood. Traders treat that overlap as a decision point because it takes far more selling to clear three reasons than one.

Michael Boutros is a Senior Market Analyst at StoneX Media with more than two decades trading foreign exchange, commodities and equity indices, and a technical approach built on reading the same market across multiple time frames. He works through currency markets with a medium term, event driven lens, tracking how structural levels interact with monetary policy calendars, which is the ground this euro dollar setup sits on.

Key Themes

• The euro dollar has closed higher in six of the past seven weeks and is working on a third monthly advance.
• Three independent levels converge in one support zone, a retracement, a pivot low, and a trend median line.
• Weekly momentum has turned and the pair has reclaimed its 52 week moving average.

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Confluence Support Stacks Three Signals Into One Euro Dollar Zone

The euro dollar rebounded this summer from an area where three separate technical arguments overlap rather than from a single line. The first is a retracement of the entire move up from last year's low, which Boutros describes as "a basic 38.2 retracement of the entire advance off last year's low", the second is the median line of the ascending formation running from the 2022 low, and the third is a pivot low from the start of the year that sits in the same band. Each one on its own is a level. Stacked, they become a zone that absorbs supply, which is why the euro dollar recovery gathered pace from there rather than drifting through it. For a trader the practical consequence is that risk gets concentrated, since one clean break through the area removes three arguments at once.

Weekly Momentum and the 200-Day Divide a Pullback From a Reversal

"We made a breach of that momentum trigger in the weekly momentum, and we also made it back above that 52 week moving average" [00:44], Boutros notes, and that combination is what keeps the recent setback in the euro dollar classified as a pullback inside a trend rather than the start of a reversal. The distinction rests on where a decline stops. A drop that holds inside the confluence zone is the market retesting the level it just reclaimed, whereas a sustained loss of that zone would remove the retracement, the pivot low, and the median line together, which is the evidence a larger high is in place. Overhead, the euro dollar is still contending with the 200-day moving average, so the recovery is unconfirmed on the daily chart even while the weekly picture has improved. Boutros frames the near term test simply, "we want to see if this recovery does mount resumption to the uptrend".

 

--- Written by Frédéric Guétin, StoneX Media Producer

--- Expert: Michael Boutros, StoneX Media Senior Market Analyst