EURUSD has declined to within .0056 (1.0995 vs 1.0939) of our downside target from September’s forecast.  It took a bit longer than anticipated, which wouldn’t much matter except that it means the pair departed from a well-defined trend channel.

In early September, it appeared that EURUSD was within a few days of reaching the .618 Fib at 1.0939.  The pair was settling back down after spiking to the channel top (peak 1, below) to help SPX recover from its late-August correction.

But, rather than make the obvious tag, EURUSD suddenly reversed (the white arrow) and backtested the purple channel’s midline a second time.  This had the desired effect of helping to prevent another leg lower for stocks, as can be seen in the SPX chart below. In a world where USDJPY is seemingly all that matters anymore, EURUSD did an admirable job of pinch-hitting.

But, as mentioned above, the delay had repercussions for EURUSD and, potentially, stocks as well.

continued for members…

Note that in order to reach the .618 Fib, EURUSD is now having to dip below the purple channel bottom.  There have been several intraday dips below the lower bound; but, this is the first time the pair closed below it.  It’s not a big dip, but it is unmistakable.In an unrigged market, this would be a rather bearish development.  And, it might end up being just that.

But, a quick glance at the chart above shows two instances (points 2 and 3) of the pair topping channel midline resistance.  So, EURUSD channels are more guidelines than rules.

With two more central bank announcements coming up this week, who knows?  EURUSD might even get all the way back down to the level it was when PSPP was launched.  Remember PSPP, the operation that was supposed to result in a lower EURUSD?

Stay tuned.