The EURUSD started the week with a selloff after last week’s breakdown. Last week, I mentioned how Thursday’s break below the March trend line could introduce weakness, which is precisely what we’ve seen.
However, EURUSD bulls aren’t going down without a fight. They’ve pushed the euro back above the 1.1200 handle on an intraday basis.
One reason for this was the weekend gap at EURUSD 1.1249. The euro closed that gap earlier on Wednesday and is currently testing 1.1200 as intraday support.
At the same time, the DXY tested the 101.80 confluence of resistance that I mentioned last week. 101.80 was a magnet, given the imbalance that developed after the April 10th selloff.
DXY daily time frame:
Tuesday’s pullback from the DXY was no surprise. The 101.80 region is a key horizontal level and descending channel resistance from February.
The forex market seems sluggish today, and for good reason. It seems traders are deciding whether to push EURUSD back above 1.1275 this week or drive the euro below 1.1200.
The weekly time frame illustrates why these levels are so pivotal:
As mentioned in the weekly forex forecast, where the DXY and EURUSD close this week should be telling. Suppose the euro closes the week below 1.1200. In that case, it will confirm a significant buy-side fakeout and open up much lower levels.
On the other hand, if EURUSD bulls can close the pair above 1.1200 and 1.1275 before the weekend, the uptrend will likely continue into the second half of May.
As for the DXY, 101.20 support and 101.80 resistance are critical. A sustained break above 101.80 could confirm a significant bottom and expose 103.40 and higher.
On the flip side, if the DXY fails to hold above 100.20 on a daily and weekly closing basis, this week’s rally will become nothing more than temporary relief.
It feels like a pivotal week for both markets. We don’t have a confirmed trend change, but the potential exists. It’s just a matter of waiting to see which side prevails.
As for me, I prefer to see 1.1200 support fail this week. I primarily trade fakeouts, and a failure at 1.1200 this week could be the start of a textbook EURUSD failed breakout. As always, time will tell.
EURUSD daily time frame:
