EUR/USD, EUR/GBP and EUR/JPY Price Setups

Euro Setups: (EUR/USD, EUR/GBP, EUR/JPY)

• Revised data confirms technical recession in Europe provided there are no upward revisions to the Q1 figure
• EUR/USD: Sharp sell-off meets shorter-term support
• EUR/GBP: Prior pivot points guide bearish continuation/bullish pullback scenarios
• EUR/JPY: Bounces off support with year-to-date high in sight
• The analysis in this article makes use of chart patterns and key support and resistance levels. For more information visit our comprehensive education library

Data Revisions Confirm Technical Recession for the Euro Zone

Data from Eurostat revealed that the euro zone economy entered into a technical recession as recently as Q1, although only just. Q4 data was revised from a 0 quarterly growth to a 0.1% contraction while the third estimate of Q1 went from 0.1% growth to a 0.1% contraction.

Deteriorating economic conditions considered alongside encouraging core inflation data suggest that the euro could come under more pressure despite the ECB adamant on further rate hikes. Markets anticipate the ECB will hike next week and again in either July or September but if subsequent inflation data heads lower, a case could be made that the committee consider a pause or even a ‘skip’ like the Fed is likely to implement.

EUR/USD: Sharp sell-off meets shorter-term support

EUR/USD reveals a rather aggressive sell-off since the May high, appearing to consolidate around 1.0695 and 1.0760. The slowdown in bearish momentum sees the pair edging up on the day but interestingly enough, remaining in a pennant formation that has developed over recent sessions. Essentially, the bearish pennant suggests further downside upon an equally aggressive sell-off to that seen since May.

However, price action appears to have found a zone of resistance around 1.0695 which remains the immediate challenge for further downside with the MACD hinting at a potential bullish crossover, supporting prices in the short-term.

EUR/USD Daily Chart

Source: TradingView, prepared by Richard Snow

EUR/GBP: Prior pivot points guide bearish continuation/bullish pullback scenarios

EUR/GBP also reveals a bearish pennant formation but the prior decline has not proven to be as aggressive as that seen in EUR/USD. Prices trade well below the 200 DMA which acts as a trend filter, while the pair appears to enter into a period of consolidation. Similarly to EUR/USD, the pennant and prior pivot points help to provide levels of interest for either a bearish continuation or bullish reversal outcome.

The more medium-term downtrend remains constructive as long as daily candle closes remain below 0.8650, with a move below 0.8566 adding more fuel to the bearish fire. However, the RSI is nearing oversold levels meaning that bears may soon run out of steam and a pullback may develop in the interim. The bar for a bullish bias is rather high, suggesting the pair trade all the way up around 0.8725 and 0.8750 (200 DMA) to invalidate the current bearish posture.

EUR/GBP Daily Chart

Source: TradingView, prepared by Richard Snow

EUR/JPY: Bounces off support with the year-to-date high in sight

On the bullish side for the euro, EUR/JPY continues to show signs of a bullish continuation after testing and respecting the zone of support around 148.70. The emergence of extended lower wicks helped to signal a reluctance to trade lower when approaching the zone and subsequently, in the London session, prices are holding yesterday’s gains. Bullish momentum from here would highlight the yearly high of 151.60, which isn’t all that far away.

Earlier today, Japan actually released better than expected GDP data for Q1 – in stark contrast to the euro zone’s downward revisions and recent contraction. A massive revision to 2.7% from a forecast of 1.9% annualized quarterly growth did little to benefit the yen. With the RSI well away from overbought territory, this pair could continue to edge higher in the lead up to next week’s European Central Bank and Bank of Japan interest rate meetings.

EUR/JPY Daily Chart

Source: TradingView, prepared by Richard Snow

— Written by Richard Snow for DailyFX.com

Contact and follow Richard on Twitter: @RichardSnowFX