Back in January, with DXY having dropped from 95.15 to 92.51, we went full-on bear and reiterated a target [originally from May 1, 2017] of 88.423 on the index [see: Update on USDJPY]  This meant a huge jump for EURUSD, which at the time was trading at 1.19.  We targeted 1.2597 and crossed our fingers.The biggest question at the time was the top of the falling red channel. Would the pair zip on up to the channel top or wait until it aligned with the .618 Fib?

By Feb 16, DXY had plunged to 88.253 and EURUSD had popped to 1.2555 — .0042 from our target.  The question remained, what about the channel top?  [see: Where to Next?]  We were kept in suspense until late April, when a consolidating triangle finally broke down instead of out.

The midline of the rising white channel didn’t hold, and the pair continued to drop until May 29, when it finally reached the channel bottom.  Now, two weeks later, it’s testing the channel bottom again on Draghi’s latest verbal gymnastics.  Will it hold, or are we looking at another leg down for the pair?

continued for members…

Note that the red channel top is still up there, waiting for a tag… …which would mean a breakdown for DXY, potentially to tag its purple channel bottom.EURUSD’s red channel is pretty solid, as is the large rising white channel.  The smaller rising white channels have each broken down in succession.

And, we could be looking at a pretty substantial drop if the latest one doesn’t hold.  The best targets are a backtest of the falling white channel top at 1.1281 or the red .618 at 1.1186.

These next few days are critical for the pair.  With QE supposedly being withdrawn in the face of lowered GDP and increased inflation forecasts, it’s anyone’s guess how it’ll sort out.  I’d stay long for the upside target as long as the pair remains above the white channel bottom, say 1.15.  If that falls, though, it’s a strong short.