EURUSD – Friday Spike Reinforces Bearish Outlook

The euro remains bearish against the dollar despite another spike occurring in the pair on Friday. The rally was cut short around 1.11 which, in my view, reinforces the bearish argument for this pair.

For one, the pair failed to break above last Monday’s high of 1.1130. This level coincides with both the descending trend line – 14 July 2014 highs – and the 144-day simple moving average. The sell-off into the end of the week is also not really a characteristic of a market that is particularly bullish.

While further consolidation may following in the days or even weeks ahead, including occasional spikes like those seen recently, the bullish case in this pair seems difficult to justify.

Moreover, the fundamentals offer further support for the bearish case given the divergence between the monetary outlooks of the two central banks. The European Central Bank is likely to continue its quantitative easing program until at least September 2016, while the Fed seems intent on raising interest rates this year.

With the pair appearing to remain in consolidation mode for now, resistance remains around 1.11 and may come earlier as the trend line closes in. Below, support is being found around 1.09-1.0925. If this is broken, then 1.0870 could be an area of interest, followed by 1.0810-1.0820.

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