In this series, we scale-back and take a look at the broader technical picture to gain a bit more perspective on where we are in trend. Euro is trading into a critical support confluence early in the month with major event risk on tap this week. Here are the key targets & invalidation levels that matter on the EUR/USD weekly chart. 

EUR/USD WEEKLY PRICE CHART

(Click on image to enlarge)

Notes: In last week’s EUR/USD Price Outlook, we highlighted the 1.1780/91 resistance barrier while noting that, “a breach / close here is still needed to fuel the next ‘leg’ higher in price.” Euro probed into this region for days (never closed above) with a final attempt post-FOMC giving way to a 2.6% sell-off in the single currency.

The decline is now testing multi-year slope support extending off the November 2015 lows (red) with the 61.8% retracement just lower highlighting a key zone at 1.1498-1.1510- we’re looking for a reaction off this mark with the immediate short-bias at risk while above. Ultimately a breach above the 1.17-handle would be needed to shift the broader focus back to the long-side.

Bottom line:Looking for signs of downside exhaustion while above 1.1498 for now. From a trading standpoint, a good spot to reduce short-exposure / lower protective stops with the near-term focus on a possible long-entries. A break / close below would invalidate the reversal play with such a scenario targeting the yearly low-week close at 1.1436 backed by the 200-week moving average / slope support at ~1.1330and the 1.13 handle. Keep in mind we’re just now beginning to carve out the October opening range with US Non-Farm Payrolls (NFP) on tap this Friday.

EUR/USD TRADER SENTIMENT

• A summary of IG Client Sentiment shows traders are net-long EUR/USD - the ratio stands at +1.03 (50.6% of traders are long) – extremely weak bearish / neutralreading
• Long positions are16.0% higher than yesterday and 27.7% higher from last week
• Short positions are 1.7% higher than yesterday and 15.1% lower from last week
• We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests EUR/USD prices may continue to fall. Traders are further net-long than yesterday and last week, and the combination of current positioning and recent changes gives us a stronger EUR/USD-bearish contrarian trading bias from a sentiment standpoint.