The last few months have been challenging to say the least for those attempting to decipher EURUSD’s intentions. At first glance, I can see how the price action during this time may have been misleading.
It all started in late October of 2015 with the key technical break that took out a level of support that had been in place for the previous seven months. Then, in November, the bears followed up on their initial push lower, triggering a slow but steady landslide that eventually wiped out 500 pips by month’s end.
December, on the other hand, started off with a bang for the bulls after Draghi surprised market participants with a more-timid-than-expected address. That single session would eventually take out the previous twenty one trading days combined, all but cancelling out November’s losses.
Since that time, the pair has been bouncing back and forth between the 1.0820 handle and 1.1020. The consolidation that consumed the majority of December wasn’t too surprising considering the 400 pip buying frenzy on December 3rd coupled with the liquidity lull that often frequents the holiday season.
Fast forward to today and it seems that sellers never actually left the driver’s seat. So much for the notion that last month’s consolidation was a bullish continuation pattern.
While I’m not one to cancel out any possible outcome, the fact that the pair is on track to close today’s session well below the 1.0820 handle is evidence that sellers remain in control.
It would appear then, that the early December rally was nothing more than a facade- price action that at first glance appears to be constructive, but loses its luster as price and time begin to wash away the deception.
From a technical standpoint, a daily close below 1.0820 would once again open up the flood gates for additional selling pressure. The first level of support looks to be the 1.0660 area followed by the 2015 low at 1.0460.
Of course the big question that is still on everyone’s mind is, will this be the break that finally triggers the long-awaited push to parity?
Perhaps, but regardless of when it happens, my bearish bias will remain intact so long as the pair trades below former channel support on a closing basis. This was a level that played a significant role between March and October of 2015 and should therefore continue to act as the “line in the sand” between the bulls and the bears in 2016.
Do keep in mind that tomorrow’s session features several notable events that will impact the US dollar. Those events include the ADP non-farm employment change, trade balance, non-manufacturing PMI as well as the FOMC meeting minutes, which is scheduled for release at 2pm EST.