EURUSD tests falling wedge support held since 2015 

Lim Jun Kit

THE EURUSD has been making headlines for hitting parity for the first time in two decades. Looking at the historical price movement of the pair, it rebounded from 0.82 in 2000 and reached a peak of 1.60 in 2008. Since then, the EURUSD has fallen into a broad downtrend in a falling wedge that extends to this day. The falling wedge on the monthly chart, can be identified by connecting a series of higher highs and lower lows to create two converging descending trend lines that resemble a cone. As at the time of analysis (Jul 15, 2022), the pair is flirting with the psychological parity level of around 1.

The technical set-up for the EURUSD still advocates for bearish bias according to a few observations on the monthly chart. Firstly, the crossover of the shorter-term 20-period exponential moving average (20 EMA) below the 50-period exponential moving average (50 EMA) is a bearish signal that indicates the downtrend is likely to continue.

Secondly, the technical indicator Moving Average Convergence Divergence (MACD) also gives us some indication that there could be further downside potential. The histogram of the MACD shows the distance between the MACD and its signal line. If the MACD is below the signal line, the histogram will be below the baseline and it suggests a bearish momentum. Currently, the bearish momentum is getting stronger as the histogram resides below the signal line and is diving further below the baseline of zero.

Thirdly, the Relative Strength Index (RSI) also paints a grim picture for the EURUSD. RSI is a momentum oscillator that measures the speed and change of price movements. Fifty is regarded as the neutrality line where any reading above 50 is bullish, and a reading below 50 indicates that the price is bearish. The RSI on the EURUSD monthly chart pierced below the oversold level to hover around 26, signalling that bearish momentum is in full swing for the pair.

Despite the bearish observations stated above, traders should be aware that prices are testing the lower band of the large falling wedge, which the pair had tested and found support on two occasions in 2015 and 2017.

Looking ahead, there is a possibility of a rebound from current levels that may test the previous support-turned-resistance at 1.034 (R1). As long as prices do not advance beyond R1, we hold a bearish bias view on the pair with a downside price target of 1.00 (S1) and 0.97 (S2) in extension.

The writer is strategist at Phillip Nova