Fading rallies continue to be my favorite way to trade this market because I do know that typically after a choppy move like we have seen followed by a big drop, we chop around a little bit more and then go lower again.

• The EUR/USD initially rallied on Thursday provide struggled to stay above the parity level.
• At the end of the day, we ended up forming a bit of an inverted hammer, which suggests that perhaps we are going to continue to see downward pressure.
• However, Friday is a bit of an outlier at this point, due to the fact that Jerome Powell is speaking at the Jackson Hole Symposium, and the whole world is trying to see whether or not the Federal Reserve is going to continue being hawkish going forward.

Looking at this chart, you can see clearly that we are in a downtrend, and there’s nothing out there to make me believe that the Euro will suddenly be a currency that you want to own. Even if we were to turn around and break above the top of the inverted hammer, which is a traditionally bullish sign, I will just step to the side and look for an opportunity to start shorting at higher levels. The 50 Day EMA above is sitting near the 1.02 level and dropping quite drastically. I think that any approach to that area will see a lot of resistance and selling pressure.

Traders Waiting for European Central Bank

If we were to break down below the last couple of candlesticks, then my target is the 0.98 level. The 0.98 level is an area that traditionally has been important, but you must go back over 2 decades to see when it was last tested. I think at this point, everybody knows that the European Union is going to have a very bleak winter, so I think a lot of people are going to have to keep that in mind, especially when they try to judge what the European Central Bank will have to do. They will almost certainly have to be loose with monetary policy, and therefore it is worth noting that the US dollars on the other side of the spectrum, as the Federal Reserve, must fight inflation, and does at least try to pretend like they are going to do so.

Fading rallies continue to be my favorite way to trade this market because I do know that typically after a choppy move like we have seen followed by a big drop, we chop around a little bit more and then go lower again.

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I have no interest in buying the Euro until we clear the 1.06 level to the upside.

The EUR/USD currency pair continues to take a bit of a beating as we have seen it drop through the 1.01 level during trading on Thursday. There is probably not much that’s going to keep it from going to the parity level over the next couple of days, which of course is an area that will attract a lot of attention. At this point, I think it’s almost a foregone conclusion.

The Euro has a whole host of problems that it has to worry about, that the United States simply doesn’t need to concern itself with. The lack of energy in the European Union this year is going to be a major issue, and even though Germany has been building up gas supplies, it is still far from being out of the woods.

Market participants also will be paying attention to interest-rate expectations, and even though there is a delusion amongst traders that the Federal Reserve can ignore inflation and start easing again, the reality is that the ECB is even further away from being able to pretend that it can fight inflation. Quite frankly, the European Union is stuck between a rock and a hard place, and the currency markets are very well aware of this. As long as that’s going to be the case, it’s difficult to make a case for the Euro to rise over the longer term.

EUR/USD Price Predictions

Breaking below the parity level opens up the possibility of a move down to the 0.98 level, something that I don’t necessarily think will be easy to make happen, but it is possible. Generally speaking, I think that rallies will be sold into at the first signs of exhaustion, as we obviously have a lot of negativity out there and it does not seem to be going anywhere.

• The size of the candlestick is somewhat important, as it does suggest that perhaps we have plenty of downward momentum. Whether or not that carries through into the weekend is a completely different question altogether, but it does make quite a bit more sense that traders might be willing to hold US dollars over the weekend instead of Euros.
• Once we get a daily close below the parity level, I anticipate that there will be even more varied pressure in this market.
• I have no interest in buying the Euro until we clear the 1.06 level to the upside.

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The next key catalyst for the EUR/USD price will be the latest European consumer inflation data

Bearish view

• Set a sell-stop at 1.0150 and a take-profit at 1.00.
• Add a stop-loss at 1.0250.
• Timeline: 1-2 days.

Bullish view

• Set a buy-stop at 1.0235 and a take-profit at 1.0300.
• Add a stop-loss at 1.0150.

The EUR/USD price rose slightly after the Federal Reserve published minutes of the last monetary policy meeting. The pair rose to 1.0200, which was a few points above this week’s low of 1.0120. It remains substantially lower than last week’s high of 1.036.

Fed minutes and EU inflation data

The EUR/USD price tilted upwards after the FOMC published minutes of the past meeting. The minutes showed that some officials judged that it will be necessary to decelerate the pace of interest rate hikes in a bid to evaluate the impact of the past meetings.

Members were worried that the bank could be tightening at a substantially faster pace than is necessary. In that meeting, the committee decided to hike interest rates by 0.75% for the second straight month. It brought the total rate hikes this year to 225 basis points. The minus added:

“As the stance of monetary policy tightened further, it likely would become appropriate at some point to slow the pace of policy rate increases while assessing the effects of cumulative policy adjustments on economic activity and inflation.”

A lot has happened since the Fed met in July. Data by the Bureau of Labor Statistics (BLS) showed that the country’s unemployment rate dropped to 3.5%. Further, inflation moderated slightly in July as it dropped from 9.1% to 8.7%.

On Wednesday, data showed that retail sales did well in July. Headline sales rose at an annual pace of 10.1%. Additionally, big retailers like Walmart and Home Depot published results that were better than expected.

The next key catalyst for the EUR/USD price will be the latest European consumer inflation data. Based on the previous estimates, analysts believe that the headline consumer inflation rose to 8.9% while core inflation rose by 4%.

The pair will also react to the latest existing home sales numbers. Economists expect the data to show that sales dropped from 5.12 million to 4.89 million in July. Fed officials like Esther George and Neel Kashkari will also deliver speeches.

EUR/USD forecast

The four-hour chart shows that the EUR/USD price has been in a strong downward trend this week. It managed to move below last week’s high of 1.0366 to a low of 1.0123. The pair has dropped below the 25-day and 50-day moving averages and the ascending purple trendline. It is also between the 23.6% and 38.2% Fibonacci Retracement level. The pair will likely continue falling and retest the crucial parity level at 1.000.

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I think we will continue to see plenty of reasons for this pair to continue dropping.

• The EUR/USD currency pair fell hard on Monday, reaching down to the 1.0150 level.
• This is an area that has been supported previously, extending down to the 1.01 level.
• If we were to break down below that level, then it’s likely that this market goes much lower.
• In that general vicinity, I would anticipate that this market would hear quite a bit of noise.

EUR/USD Technical Analysis

If we break it down below the 1.01 level, then it’s possible that we could go looking to the parity level underneath, an area where you would expect to see a lot of interest. In fact, we had bounced quite significantly from there previously, so I think it does make quite a bit of sense that there will be a lot of “market memory” in that area. Breaking down to the parity level then opens up the possibility of a drop-down to the 0.98 level, perhaps even down to the 0.96 level.

The European Union continues to have major problems when it comes to the overall economic performance and the problem with energy that they will undoubtedly see this winter. The European Central Bank did a little bit of monetary tightening previously while promising to buy more assets. In other words, it was for show, and not much more.

It’s worth noting that the 50-day EMA has offered significant resistance previously, so it does make a certain amount of sense that we see that as a potential resistance barrier on any type of rally, so I think we continue to fade rallies that occur. The Monday candlestick is closing toward the bottom of the range, which certainly shows negativity that should be followed through.

On the other hand, if we were to turn around and break above the 1.04 level, then we could make a run to the 1.06 level. Breaking above the 1.06 level then has me switching my overall attitude and perhaps finally buying the euro. I don’t think that it’s going to happen anytime soon, especially considering the price action that appeared on Monday. I think we will continue to see plenty of reasons for this pair to continue dropping, so any time at rallies, I will be looking for signs of exhaustion that I can jump on, just like I have been doing for the last several months.

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This is a market that continues to be choppy, but favors the downside.

• The EUR/USD currency pair fell a bit on Friday as we continue to see a lot of concern around the world.
• Keep in mind that we’ve been in a downtrend for quite some time, and it does make sense that we will see the euro suffer as a result, based upon simple momentum.
• Furthermore, you need to keep an eye on the fact that the interest rates in America continue to be much higher than in the European Union, which makes sense considering just how much negativity there is surrounding the European Union.

Fed Likely to Strengthen USD

While inflation is a bit of a problem throughout parts of the EU, the reality is that the Federal Reserve is going to remain very tight and therefore it’s likely that we will continue to see the US dollar strengthen. Ultimately, this is a situation that should continue going forward, especially as we see so much in the way of concern about energy in the European Union going forward. Quite frankly, the market is likely to see this as a “fade the rally” type of situation. It will continue to eventually try to get down to the parity level again, and I think it’s probably only a matter of time before we break below.

The 50-day EMA is a significant resistance barrier, but more important than that is going to be the 1.04 level. Breaking above that level would be a bullish sign, but it’s not until we break above the 1.06 level that I would consider this market broken out to the upside for a bigger move. While I cannot necessarily envision that happening, it’s a matter of following price at that point. If we do break above there, then the market is likely to continue to see the euro bounce quite higher.

The markets are trying to figure out whether or not the Federal Reserve is going to remain tight, which they very well should. However, if inflation starts to drop even further, then it’s possible that we could see the euro be a short-term beneficiary. If we break down below the parity level, it’s likely that the market could go down to the 0.98 level, perhaps even the 0.96 area. Ultimately, this is a market that continues to be choppy, but favors the downside.

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It’s probably only a matter of time before we see the market come back to shorting the Euro.

• The EUR/USD currency pair has rallied a bit during the trading session on Thursday, as we continue to hang about the 50 Day EMA.
• More importantly, the 1.04 level above continues to be significant resistance, as it has a lot of “market memory” built into it.
• That is an area that previously had been significant support, and therefore I think it makes quite a bit of sense that we would see a reaction every time we get close to that level.

For what it is worth, you can see that we have stopped dead in our tracks at the same highs as we had during the previous session, so Thursday looks like there is still going to be a bit of confusion and perhaps fear out there, which makes quite a bit of sense considering that the Euro is getting a lot of noise coming out of the region when it comes to potential selling, especially as energy will be a problem for the EU this winter. In other words, we may see a major breakdown in economic growth. In fact, things are getting so bad in Germany that they are starting to slow down the amount of gas being used.

At this point, the European Union has a lot of issues, not the least of which would be a flagrant lack of leadership. The interest rates in the United States continue to be much higher than the European Union, and it’s also worth noting that the ECB has to buy almost all Italian debt, because things have gotten so bad in that market. In other words, there’s no real reason to think that the European Union is suddenly going to strengthen.

Part of the bounce that we have seen in this pair has been due to the fact that the interest rates in America have slowed down a bit. Ultimately, the market is looking more at the possibility of inflation slowing down a bit in the United States, and therefore the idea is that the Federal Reserve will not have to be as tight as it had been. This is complete nonsense because inflation is still running at 8.5% year-over-year, and therefore it’s probably only a matter of time before we see the market come back to shorting the Euro. Even if we break above the 1.04 level, we still have a significant amount of resistance of the 1.06 level as well.

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The Europeans are going to struggle to keep the lights on, and that has a lot to do with economic output. 

• The EUR/USD currency pair rallied a bit on Wednesday as CPI numbers in the United States came out lower than anticipated.
• This suggests that the rate of inflation could give the Federal Reserve a bit of a break, keeping them from having to be so aggressive with its monetary policy.
• That being said, it’s very unlikely that we will see that happen, due to the fact that the inflation numbers have still come in at about 3 to 3-and-a-half times the Fed’s desired target.

The size of the candlestick was somewhat impressive, but the later we get into the day, the more we pulled back. This suggests to me that there is no real follow-through ready to happen, and I think it is a potential problem just waiting to happen. The 50-Day EMA has offered a little bit of dynamic resistance, so that’s worth paying attention to as well. The 1.04 level above their offers resistance as well, so I do think that it is probably only a matter of time before the overall downtrend continues.

Lack of Energy

When you look at the European Union, it has a whole host of issues, not the least of which is going to be the fact that the energy situation is going to be a very big problem. After all, the Europeans are going to struggle to keep the lights on, and that has a lot to do with economic output. As long as the economy is going to struggle to live up to its full potential, the ECB will have to remain relatively loose with its monetary policy, despite some of the rhetoric that had recently been stated.

The 1.04 level being broken to the upside opens up the possibility of a much bigger move, perhaps to the 1.06 level. It’s not until we break above the 1.06 level that I would consider this trend completely changed. On the downside, I think that the parity level is worth paying close attention to, because it has a lot of psychology attached to it and of course will attract a lot of headline attention. If we were to break down below there on a daily close, then it would open up a trap door selling pressure. That would take a bit of work, but ultimately, I think it’s probably only a matter of time.

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I’m either going to fade short-term rallies, or sell a breakdown.

• The EUR/USD currency pair rallied a bit Monday but then turned around to show signs of weakness again.
• We have been in consolidation for a while, with the 1.03 level being resistance and the 1.01 level underneath being supportive.
• This has been the case for a couple of weeks, so it’s not a huge surprise to see that we stayed within this area.

Furthermore, it makes quite a bit of sense that we are still in that area due to the fact that the CPI numbers come out on Wednesday, and people will be paying close attention to how that turns out in order to get an idea as to what the Federal Reserve is going to do next. It’s a bit odd, due to the fact that the traders out there seem to think that the Federal Reserve is going to become a bit looser with its monetary policy going forward, even though the Federal Reserve has explicitly said that they are going to continue to fight inflation as its number one job.

50-Day EMA Dropping

The 50-day EMA sits below the 1.04 level and is dropping lower. That being said, even if we break above the 1.03 level, both the 1.04 level and the 50 Day EMA look likely to cause a significant amount of resistance. The 1.04 level has been previous support, so there is probably going to be quite a bit of “market memory” in that area on the way back up.

On the other hand, if we break down below the 1.01 level, it’s possible that we go down to the parity level. The parity level of course is a major psychological level that people will be paying close attention to.

If we were to break down below the parity level, it’s likely that the euro will drop down to the 0.98 level rather quickly. The fact that the Germans are not going to have enough gas over the next several months, and we are already starting to see shutdowns of major factories being a real threat, means it is probably only a matter of time before the European economy tanks again. In that scenario, it’s likely that we could go much lower, as we should continue to see plenty of downward pressure. I’m either going to fade short-term rallies, or sell a breakdown.

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I think we have to be cautious about trying to get long, but I think short-term selling opportunities will continue to present themselves in the meantime. 

• The EUR/USD currency pair continues to trade in a tight range, as Friday saw more selling pressure.
• This was mainly in reaction to the jobs number in the United States coming out better than anticipated.
• The reaction was negative for the Euro as traders began to bet that the Federal Reserve will continue to tighten.
• This obviously is good for the US dollar, as the market will have to pay close attention to the interest rates and whether or not they continue to go higher.

Anticipating a Range Breakout

The 1.01 level underneath has offered quite a bit of support, while the 1.03 level above has offered resistance. I think that continues to be the situation here, as the market will continue to be very choppy. That being said, I think it’s probably only a matter of time before we see this market have to break out. If we were to break out of this range, that could give us a bit of a “heads up” as to where we’re going next. Breaking down below the bottom of this range opens up the possibility of a move down to the parity level, which has seen a lot of noise previously.

On the other hand, if we were to see the market break above the 1.03 level, then it’s possible that we could go to the 1.04 level, possibly even the 1.05 level. At this point, the market is likely to see a lot of selling pressure, but we need to have some type of catalyst to make the Euro suddenly spike. It seems very unlikely it’s going to happen anytime soon, so I think you should continue to see selling on short-term rallies, and at the first signs of exhaustion.

Sooner or later, we will have some type of bigger move, but right now it does not look like the pair is ready to do so. Regardless, we have been in a downtrend for quite some time so there’s no need to think that we are suddenly going to change. With this, I think we have to be cautious about trying to get long, but I think short-term selling opportunities will continue to present themselves in the meantime. Anything below the parity level on a daily close would be rather drastic for the Euro, sending the market much lower.

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During the middle of this week’s trading, the price of the EUR/USD currency pair is subjected to selling operations. As mentioned before that this may be very likely as the markets prepare for the reaction from the announcement of the US jobs numbers. This is in addition to the continuing strong threat to the energy future in Europe, increasing global geopolitical tensions, and the dollar as a safe haven. The selling of the Euro-dollar reached the support level of 1.0122 before settling around the 1.0170 level in the beginning of trading today, Thursday.

What is adding to the euro’s losses in the forex currency market?

Recent indications from the results of economic data from the eurozone, which confirm that the bloc is suffering from recession due to the interruption of crucial Russian energy sources, which may stop the path of raising interest rates by the European Central Bank. On the other hand, the Federal Reserve is indifferent to fears of economic stagnation and is determined to raise US interest rates until containing US inflation, which recorded its highest in 40 years.

It appears that ECB officials have invested billions of Euros in bond purchases to protect Italy and other southern Euro members since activating their first line of defense a month ago to keep speculators at bay. Data released this week indicates a significant use of debt-free funds maturing in its pandemic program portfolio, indicating the use of a tool crafted by policy makers as an initial response to any market turmoil.

The statistics, available on a two-month-only basis, show net holdings of German, French and Dutch bonds fell by 18.9 billion euros ($19.3 billion) through July. Net purchases of debt from Italy, Spain, Portugal, and Greece amounted to 17.3 billion euros. The figures are the first hard data to reveal the European Central Bank’s intervention in the debt markets after the explosion in bond yields in June forced President Christine Lagarde to hold an emergency meeting where officials agreed on the need to respond.

As an initial step, policymakers agreed to be flexible in reinvesting upcoming paybacks into the €1.66 trillion pandemic-era asset purchase program. To regulate bond purchases, they divided the eurozone into three categories: donors including Germany, France and the Netherlands, recipients from Italy, Greece, Spain and Portugal, and so-called neutrals.

Lagarde described this resilience as the ECB’s first line of defense against market volatility that threatens the transmission of monetary policy, with the newly created debt-buying tool in the background in case bolder interventions become necessary. Italy has been the focus of investor interest since before the collapse of Italian Prime Minister Mario Draghi’s government last month and elections were put on the agenda in late September.

Technical analysis of the EURUSD:

EUR/USD is moving within a range, with support around 1.0120 and resistance at 1.0270. The price attempted to break above the top but has since fallen back inside the pattern. The pair is approaching the bottom of the range, which may once again settle as a floor. In the near term the 100 SMA is above the 200 SMA to indicate that there is a chance to go up but lacks strong momentum.

Stochastic is also moving higher to show that buyers are in control. The oscillator has room to rise before reaching an overbought area to reflect fatigue among buyers, so another bounce to resistance may follow. EUR/USD fell below the dynamic inflection points at the moving averages as an early sign of selling pressure. A break below the support level could lead to a decline that is the same height as the consolidation pattern or 150 pips.

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