EUR/USD Loses 400 Pips In Two Days, What’s Next?

Central Banks led the way last week, and will continue doing so during the upcoming days. After the ECB tip toed further easing for the upcoming December, the PBoC slashed its rates on Friday, reducing its benchmark lending rate by 25 bps and the reserve requirements ratio for banks by 50 bps during the European morning, leading to a strong recovery in European and American stocks, which ended up boosting the greenback across the board.

This week, the US Federal Reserve and the Bank of Japan will have monthly economic meetings, and while the first is expected to remain on hold, the market will be looking for any tip on the date of a US rate hike. As for the BOJ, investors are expecting some extension of the ongoing stimulus, and a continued JPY decline.

The EUR/USD pair lost almost 400 pips in two days, falling as low as 1.0995 on Friday, before posting a shallow bounce and ending the week barely above the 1.1000 mark. The pair has broken below a long term ascendant trend line coming from April low at 1.0519, and the break has strong bearish implications, regardless whatever the US FED announces this week in its Thursday´s policy meeting. As long as upward corrective movements meet selling interest around 1.1120, the downside remains favored.

Technically, the daily chart shows that the pair is currently below its moving averages, with the 200 DMA converging with the broken trend line around 1.1120, the mentioned critical resistance, whilst the technical indicators maintain their strong bearish slopes below their mid-lines. In the 4 hours chart, the technical indicators have lost their bearish potential, but remain in extreme oversold readings, far from suggesting the pair may correct higher. Renewed selling interest below 1.1000, should lead to a continued decline down to 1.0920 this Monday, with the ultimate bearish target for this week at 1.0840.

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