EUR/USD Monthly Technical Analysis for July 2013

After an early June upside breakout attempt failed, the EUR/USD sold off sharply putting the Forex pair in a position to weaken further in July. It all depends on the Fed’s next move since whatever it does will determine the strength or weakness of the U.S. Dollar.

Although there have been signs of a recovery in the Euro Zone, the area continues to remain weak, putting the European Central Bank in a position to provide additional stimulus if necessary. Talk of additional stimulus tends to weaken a currency.

At the same time, the U.S. Federal Reserve is talking about the possibility of tapering its aggressive monthly bond-buying stimulus program. This talk has been putting upside pressure on the U.S. Dollar.

With interest rates rising in the U.S. and the Euro Zone facing the possibility of another rate cut, the Greenback has become a more attractive investment. In late June the Fed said that it is considering bringing its stimulus program to an end if economic conditions warrant such a move. Traders read this to mean the Fed would act as soon as September. This led to a strong rally in the dollar versus the Euro.

Toward the end of the month, conditions eased, giving the EUR/USD a little boost, but it may just be a matter of time before the economy grows enough to trigger a response from the Fed. This may be determined by the next U.S. Non-Farm Payrolls report on July 5.

Technically, the EUR/USD is trading inside a triangle chart pattern bounded by support at 1.3002 and resistance at 1.3311. This is the potential range of the EUR/USD during July. The triangle chart pattern is a non-trending chart pattern. It tends to indicate impending volatility. A breakout in either direction should trigger a large move. The weak close in June gives the market a strong bias to the downside.

The short-term range is 1.3711 to 1.2744. This range has created a pivot price at 1.3227. This price should control the short-term direction of the market. The longer-term range is 1.2042 to 1.3711. The retracement zone of this range is 1.2876 to 1.2680. Taking out the support angle at 1.3002 is likely to trigger a break into this retracement zone.

The main trend is down on the monthly chart. A trade through 1.3711 will turn the main trend to up, but this is nearly impossible this month. A trade through the swing bottom at 1.2744 will reaffirm the downtrend.