Key Points:

  • Turning point of the ABCD wave appears to have been reached.
  • Most technical readings are indicative of a near-term decline.
  • Brief ranging phase could come into effect this week.

The Euro’s corrective wave seems to have finally given us a turning point which could signal we are destined to see some of the near-term downside risk realised. What’s more, there are a number of other technical readings similarly suggestive of a spate of losses for the recently resurgent pair.

First and foremost, it’s worth establishing if we have, in fact, reached the forecasted turning point in the ABCD corrective wave. Well, as shown below, the combination of both the 100 day EMA and the long-term trend line seem to suggest that we have reached a near-term peak for the EUR. Indeed, the rather voracious selling pressure seen over the past number of sessions could reflect a wider consensus that the pair actually briefly overshot the appropriate point of inflection.

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Aside from the EMA and the trend line, the current Parabolic SAR and MACD oscillator readings provide further reasons to be bearish regarding the EURUSD. Specifically, there has been a clear signal line crossover on the MACD and a subsequent inversion of the Parabolic SAR bias. When combined with the aforementioned technical factors, upside potential seems notably limited as we move ahead.

However, downside risks are not nearly as significant as we would typically like to see when forecasting this particular wave. As is demonstrated below, we could also be dealing with a bullish channel formation which, when reinforced by the 38.2% Fibonacci level, could prevent the requisite downward momentum. As a result, we may have a brief ranging phase on our hands prior to any real declines taking hold of the pair.

Once the 38.2% level has been breached, we expect to see the pair retreat to around the 1.0543 price before having another go at moving beyond the long-term trend line. This point coincides with not only the 23.6% Fibonacci level, but it would also be the appropriate retracement for the overall ABCD pattern.

Ultimately, headline risks and the impacts of fundamentals will still be forces to contend with moving ahead but the corrective wave has proven largely resilient to market upsets. Consequently, follow the news feed fairly closely as it could help to explain any overshoots or ‘fake-outs’ even if something short of an absolute calamity is unlikely to materially affect the medium-term forecast.

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