EUR/USD Analysis: Focus shifts to 61.8% Fib retracement of 1.1187

October 31, 2018

EUR/USD Analysis: Focus shifts to 61.8% Fib retracement of 1.1187

The EUR could be heading down to 1.1187 (61.8% Fib R of Jan 2017 low/Feb 2018 high) before the year-end, having breached a key support yesterday.

At press time, the currency pair is trading at 1.1345, having closed October below the 50-month simple moving average (SMA).

The moving average had reversed pullbacks in May and June. Further, occasional dips below that level were short-lived. For instance, the EUR fell to a low of 1.1301 in mid-August. Back then, the 50-month SMA was located around 1.1460. However, by the end of the month, the common currency was sitting well above the crucial SMA support.

The price action is telling that the 50-month SMA was the level to beat for the bears... and as noted above, the crucial support has been breached.

Therefore, the emboldened bears may push the spot down to the next key support lined up at 1.1187. More importantly, other technical factors and the rising US-German (DE) yield differential indicates that a drop to 1.1187 is perfectly possible.

Monthly chart

As can be seen, the spot closed below the downward sloping (bearish) 50-month SMA, signaling a resumption of the retreat from the yearly high of 1.2556 reached in February.

The break below the bearish SMA puts the focus back on the death cross (bearish crossover between the 50- and 200-month SMA confirmed in October/November 2016).

The 5-, 10-month SMAs are trending south, indicating a bearish setup. Further, the RSI is holding in bearish territory below 50.00 and the MACD is signaling that downside momentum is gathering pace.

All-in-all, the stage looks set for a drop to 1.1187. The oversold conditions on the short-term charts could see the EUR rise back above 1.14, although the outlook would remain bearish as long as the spot is holding below the October high of 1.1625.