The EURUSD is flirting with the 1.0760 level today ahead of significant event risk this week, including CPI on Tuesday, FOMC on Wednesday, and an ECB rate decision on Thursday.
It’s an incredible line-up that will produce substantial volatility for EURUSD.
As such, trading the euro this week is risky, considering the stop-hunting likely to occur over the next three days.
So it seems fitting to discuss a longer-term outlook for EURUSD today.
Let’s kick things off with the 12-month EURUSD chart.
Each candle on the chart above represents 12 months or one year.
It’s a chart most traders ignore because it takes an entire year to form one candle.
But it helps identify yearly opens, often serving as significant support/resistance pivots in the market.
However, the shape of a yearly candle can also offer hints.
Take another look at the 12-month EURUSD chart, namely the 2022 candle.
Notice the long lower wick of last year’s candle.
We often see long wicks like this get filled, at least partially.
You can see how nearly every long wick between 2008 and 2011 partially filled before the EURUSD started trending.
The same concept applies to most higher time frames, including weekly, daily, and even 4-hour time frames.
The 50% of last year’s wick sits at 1.1000.
We also have the 2016 and 2017 lows at 1.0340, which haven’t been tested since last year’s wick formed.
The above makes me think we’ll likely see EURUSD revisit 1.0340 if not 1.1000, later this year.
Another reason the euro will likely head lower in the second half of 2023 is the breakdown of the 39-year trend line I wrote about months ago.
The EURUSD tested the level perfectly as new resistance in April and May.
The euro was established in January 1999, so the chart above uses a pre-euro basket of currencies before 1999.
The information above is why I have a longer-term bearish outlook for the EURUSD.
As for the more immediate future, you can see how the euro is finding resistance today at 1.0760 after closing Friday below.
I mentioned this fakeout in Saturday’s Weekly Forex Forecast.
However, the key to trading volatile weeks like this is to play the extremes and forget the sideways price action.
We’re likely to see stop-hunting between Tuesday and Thursday, so trading the extremes of the range is the best way to avoid getting chopped up.
Given everything I discussed above, I favor shorting strength, but only during the aftermath of this week’s volatility to avoid getting chopped up.
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