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Euro market update: The pullback continues

Euro bearishness has unfolded with some signals having added weight; EUR/USD price action has seen mixed volatility outcomes with event risk looming and 1.1130 might be pivotal for EUR/USD direction.

Source: Bloomberg

EUR/USD technical analysis

The mid-July peak of 1.1275 traded outside the upper band of the 21-day simple moving average (SMA) based Bollinger Band.

After it closed back inside the band, it opened up a bearish run over the next few days.

Not surprisingly, the width of the Bollinger Bands has narrowed as the price has retraced. This indicates that historical volatility has decreased. This is a measure of the price action in the past.

At the same time, the one month at the money (ATM) implied volatility has been ticking higher.

It has climbed back over 7% this week after visiting below 6% in June. This is the market pricing of forward-looking price volatility.

This should not come as a surprise given the event risk this week with monetary policy meetings for both the Federal Reserve and the European Central Bank.

After closing back inside the aforementioned Bollinger Band, it has since confirmed an Island Reversal pattern after it broke below 1.1133. A move back above 1.1133 would negate this signal.

An Island Reversal occurs when there is a gap in price action that extends the bullish or bearish trend. After the price reaches its zenith or nadir, the price action then makes another gap in the price in the opposite direction to where the first gap occurred.

If the Island Reversal is unwound, the 1.1275 – 80 area may offer resistance as the high there on July 18th coincides with some historical breakpoints.

Further up, resistance might be at the 161.8% Fibonacci Extension of the move from 1.1095 to 1.0635 at 1.1380. Just above there are some more breakpoints in the 1.1385 – 95 area.

Nearby resistance could be at the breakpoints of 1.1076, 1.1095 and 1.1185.

On the downside, support could be near the 38.2% and 50% Fibonacci Retracement levels at 1.1031 and 1.0955 respectively. Between those levels, the breakpoint at 1.1012 may provide support.

Below those levels lie the 55- and 100-day SMAs that might lend support in the 1.0890 – 1.0900 area.

Further down, there are a series of prior lows and breakpoints between 1.0830 and 1.0835 that could provide a support zone.

EUR/USD daily chart

Source: TradingView

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This information has been prepared by IG, a trading name of IG Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients.
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