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EURUSD – Divergence at Major Resistance

The euro is facing a big test as it attempts to maintain its recent momentum against the dollar and break through a major resistance level that would strongly call into question whether this pair could in fact hit parity by the end of the year, as some suspect.

EURUSD daily [1]

The first thing to note is the resistance it is facing just above the current level around 1.1120. The descending trend line – 14 July highs – and 144-day simple moving average are both big resistance levels.

Both were temporarily broken in the middle of June but this just turned out to be a false breakout and they have been tested and held since. As they have on numerous occasions in the past.

It is also the 50% retracement of the move from 18 June highs to 20 July lows, which could provide additional resistance if the market is in fact still bearish on this pair in the long run.

EURUSD 4hr [2]

The 4-hour chart suggests this could be the case, with both the MACD histogram and stochastic displaying divergence with price action. If the pair fails to make a new high at the next time of asking, it may suggest that the last week of gains was nothing more than a correction.

Alternatively, a break below the ascending trend line – 21 July lows – or, even better, a daily close below yesterday’s open (bearish engulfing pattern) – 1.0982 – would suggest any upside momentum has been lost and bearish bias resumed.

This could then bring 1.0810-1.0820 back into consideration, which has proven to be a strong support area in recent months. The ascending trend line from 13 March lows may offer further support at this level.

The pair could find support first around 1.0915-1.0925 and 1.08970, both of which have been key support levels during the rally over the last week.

Open Position Ratios [3]

Historical Position Rations [4]

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Craig Erlam

Craig Erlam [8]

Senior Market Analyst, UK & EMEA at OANDA [9]
Based in London, Craig Erlam joined OANDA in 2015 as a market analyst. With many years of experience as a financial market analyst and trader, he focuses on both fundamental and technical analysis while producing macroeconomic commentary. His views have been published in the Financial Times, Reuters, The Telegraph and the International Business Times, and he also appears as a regular guest commentator on the BBC, Bloomberg TV, FOX Business and SKY News. Craig holds a full membership to the Society of Technical Analysts and is recognised as a Certified Financial Technician by the International Federation of Technical Analysts.
Craig Erlam
Craig Erlam

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