EUR/USD Approaching Double Top Projection Target

EUR/USD (daily chart as of August 12, 2014) has been trading in a downtrend since May 8, right after the fifth spike above 1.3810/20 (gray shadows shown on chart as five spikes). On May 21, the pair broke down below the rising wedge (between two bold red trend lines) mentioned in our previous analysis, and on May 22, price breached the long-term support of the 200-day EMA for the first time since July 2013.

The last significant low point of the pair’s prior uptrend around 1.3670 has been successfully serving as resistance since May 22. For a potential double top pattern (the March 13 top (1.3966) and the May 8 top (1.3993)) with the neckline at 1.3670, the projection target would be around 1.3350 (1.3670-(1.3993-1.3670)).

Note that a potential flag continuation pattern may also be in progress (bold purple lines on chart), and the projection target would be around 1.3000 (flagpole length = 1.3993-1.3470, which applies to the support breakdown at 1.3545 à 1.3545-(1.3993-1.3470)).

The ZEW Economic Sentiment fell to 8.6 from 27.1 in July, the biggest fall since 2012. The ZEW is a sentiment index to predict the economic outlook of Germany for the next six months. Upcoming major risk events include Germany’s Q2 GDP and the PMI, which are scheduled for August 14 and 21, respectively.

Support levels below:

1st support: 1.3350 (double top projection target)

2nd support: 1.3290 (November 7, 2013 low)

3rd support: 1.3200 (psychological level)

Resistance levels above:

1st resistance: 1.3500 (June 5 low)

2nd resistance: 1.3670 (multiple highs)

3rd resistance: 1.3735 (May 19 high)