The bad news coming out of Europe is keeping euro from recovering part of its sustained decline against the greenback. The pair has been in oversold territory for quite some time. The 9-day RSI is still showing divergence but the pair is reacting more to Spain worries than to any chart pattern.

This week, EUR/USD bounced up little bit – reaching 1.2624 – in the low-volume trading on Memorial Day, when the banks in USA, Germany, France and Switzerland were closed. However, the bounce hit the support-turned-resistance level of the January lows of 1.2624. Since then it has breached the 1.2400 level.

EUR/USD has been declining for so long that there may still be a dead cat bounce but if it happens then it will be a short lived one as the medium term (months) trend is down – the longer term (years) trend is range bound.

On the monthly chart, EUR/USD is making a symmetrical triangle. The current move down seems to be headed toward testing the lower boundary of the triangle – in the neighborhood of 1.2000.

Just before the financial crisis hit in full force in 2008, EUR/USD made an all time high of 1.6038. Since then it has moved down in a couple of imperfect ABCD patterns.

The first ABCD pattern:

A1 = 1.6038 – Jul ‘08
B1 = 1.2329 – Oct ‘08
C1 = 1.5145 – Nov ‘09
D1 = 1.1877 – Jun ‘10

CD is 88% of AB with respect to the PIP move and 230% with respect to time.

The second ABCD pattern is still emerging:

A2 = 1.5145 – Nov ‘09
B2 = 1.1877 – Jun ‘10
C2 = 1.4940 – May ‘11

If this pattern behaves similar to the first one then the targeted D2 may come at 1.2060 in Aug 2012. This will also take the pair to the lower limit of the symmetrical triangle.

However, this is a weak support area. There is couple of more significant support levels below it. The first one is the 2010 low of 1.1877 and the second one is the low of 2005 of 1.6390.

For the past few years, EUR/USD has been reacting more to the fear level and the flare-up or calming of European concerns than to the macroeconomic assessment of the two economies. For the pair to reach either of these support levels, the news from the European continent has to be cooperative. If the events stoke the fears about the survival of the euro or QE from ECB then it may test one of lower levels. If the fears are calmed or the Fed declares QE3 then it may bounce up from a higher support.