Looking at the price action to the news on Friday there was a lot of heavy selling following some relatively flat numbers against expectations. The employment costs index was down and caused a move up but the big move at 3pm came from the consumer sentiment which 93.1 against a 94.2 expectation.
This move up was halted at the 1.111-1.112 level which has acted as resistance previously and now looks to be a strong ceiling in the short term. There was heavy selling throughout the afternoon on Friday which left us with a weekend close of 1.09806.
The US economy is still growing with GDP expectations unchanged at 2.8% and the Fed potentially looking at a modest interest rate rise before the end of the year. Compared to the EU which is still suffering from Greece as well as being in the middle of its QE program and has some very indebted members among the northern members as well as southern.
This leaves me generally bearish on the EURUSD, I expect we will reach parity by the end of he year but there were will be rallies from time to time as we hit major support levels or volumes are thin.
So onto the charts. If we look at the daily ticks we can quite clearly see the selling action after Friday's rally and new resistance level around 1.112 looks pretty strong as well as now forming the top of the Bollinger band.
The next stronger level of resistance is 1.14 which is also closing in on the 200 EMA level.
Support wise we have 1.08 and 1.05 as the next levels of support. At 1.08 we could see a small rally back up to the 1.111-1.112 level or just below. Or we could go right through it, that'll have to be looked as we approach the level.
I'm currently running a short from 1.111 which I have left open through the weekend. I expect we will open at a level similar or slightly lower than Friday's close and will head down to 1.08 before Wednesday when the AFP results are out.
If those numbers are slightly below expectations that could trigger a rally back to 1.112 which will present some good entry points for new shorts. If it's above expectations then the 1.08 level will give way and the price will move towards 1.05.
After the AFP results we can take a look at NFP on Friday. If we have very below expectations for AFP and NFP then we could see a small rally start from either of those levels that could take out 1.112 in the short term. In which case I would look for a short entry around 1.13-4 to keep the R/R down.
In terms of technical indicators for the bearish outlook. We are below the 200 EMA on daily ticks with a Stoch RSI cross a couple of days ago when the price hit 1.112 on Monday. The MACD is below the zero line and looks like it may cross back.
If we go closer too the 4 hour chart we can see the price also below the 200 EMA with Stoch RSI heading into overbought territory while the price was going down. Likewise the rally didn't break the MACD zero line.
On the hourly charts, where I tend to make my entries, We have the price closing below the 200 EMA, it acted as resistance in the last hour of Friday, along with the MACD cross on Friday. Stoch RSI is into oversold but given the position of it on 4 hour and daily I still take a bearish view.