EUR/USD Monthly Technical Analysis for July 2016

The EUR/USD finished lower in June at 1.1104, down 0.0027 or -0.24%. The weakness was fueled by the U.K.’s decision to leave the European Union. Initially, the Euro broke sharply as investors fled higher risk assets for so-called safer currencies like the U.S. Dollar and Japanese Yen. However, the Euro began to stabilize and actually rally on speculation the Brexit may force the U.S. Federal Reserve to actually cut rates perhaps in September.

While a Fed rate hike in July isn’t officially off the table, the U.K. vote to leave the European Union has created enough economic upheaval in the global financial markets to safely say the Fed will not be raising rates in July. Another weak U.S. Non-Farm Payrolls report on July 8 will also likely seal the deal. Basically, any dovish comments from Fed officials in July will likely help the Euro. Another round of selling pressure against the Sterling or a steep sell-off in the global equity markets will likely underpin the U.S. Dollar.

Technically, the main trend is down. The EUR/USD chart shows that a secondary lower top may be forming at 1.1616. We’ll know the strength and importance of this top if the main bottom at 1.0539 is taken out. This move will signal a resumption of the downtrend.

The main range, believe it or not was formed in 2015 at 1.0462 to 1.1712. Its 50% level or pivot comes in at 1.1087. Since the main range was formed in August 2015, the market has straddled this pivot price four times. We’ve seen months when the EUR/USD trading below and months when it traded above it.

We want to say that a sustained move over 1.1087 will signal the presence of buyers, however, don’t expect an acceleration to the upside until the tops at 1.1616 and 1.1712 are taken out. A sustained move under 1.1087 will give the market a downside bias, however, we aren’t likely to see a sharp break until the two bottoms at 1.0539 and 1.0462 are taken out with conviction.

If a rally begins to gain traction over 1.1087 then the next rally is likely to be labored because of potential resistance angles at 1.1296 and 1.1456. The latter is the last potential resistance angle before the 1.1616 main top.

If there is a sustained move under 1.1087 then the index will have a clear shot at the next uptrending angle at 1.0819. This is followed by 1.0679. This is the last potential support angle before 1.0539 and 1.0462.

The focus in July should be on trader reaction to the 50% level at 1.1087. Trader reaction to this level will determine the direction of the Euro this month.