Even with the prospect of a big interest rate hike by the European Central Bank in September rising, the euro has struggled as the bloc’s energy crisis increases recession risks. 

Every time the price of the EUR/USD tries to rebound upwards, the negative impact factors remind investors that the euro will remain weak for a longer period of time.

At the beginning of this week’s trading, it tried to bounce upwards, but its gains did not exceed the level of 1.0030 and then returned to stability around the parity price again, before the announcement of the German inflation figures and the American consumer confidence reading.

At the beginning the week, the US dollar rose to the highest level in 20 years against the other major currencies after Federal Reserve Chairman Jerome Powell indicated that US interest rates will remain high for a longer period of time to reduce rising inflation. Accordingly, the US dollar index DXY, the measure of the US currency against a basket of major currencies, rose to the highest level of 109.48 in two decades.

On the other hand, the euro remained weak near its lowest level in 20 years, even with the tough statements of the European Central Bank, which strengthened the expectations of an interest rate hike in September.

At the end of last week, Powell told the central banking conference in Jackson Hole, Wyoming, that the Federal Reserve will raise US interest rates as high as needed to restrain growth and will keep them there “for some time” to lower the 2% inflation target, which is more than three times the Fed’s rates.

“Powell’s comments supported pricing a higher rate on federal funds for a longer period of time,” said Kenneth Brooks, a currency analyst at Societe Generale Bank, “the assumption that the Fed will start cutting interest rates in mid-2023 is premature,” he added.

The capital markets responded by intensifying bets for a sharper hike in US interest rates in September, with the probability of a 75 basis point hike currently at around 70%. Accordingly, US Treasury bond yields rose, with two-year bond yields reaching their highest level in 15 years at around 3.49%, which strengthened the US dollar. In his speech at the Jackson Hole Symposium, European Central Bank Board Member Isabelle Schnabel, French Central Bank President Francois Villeroy de Gallo and Latvia’s Central Bank Governor Martins Kazak all called for strong or important political actions.

Even with the prospect of a big interest rate hike by the European Central Bank in September rising, the euro has struggled as the bloc’s energy crisis increases recession risks. It is expected that the giant Russian energy company Gazprom will stop natural gas supplies to Europe from August 31 to September 2 due to maintenance.

Overall, the EUR/USD exchange rate has fallen significantly in 2022, and although factors such as the US economy and Fed policy have been an important driver of this decline, it is the rising cost of energy supply disruptions that gives most credence to bearish forecasters for some the other markets. Regarding the expected future for the Euro-Dollar, both “Rabobank” and “Nomura” expected a sustained break below the parity price in the Euro/Dollar rate during the coming months.

Expectations of the EUR/USD:

• The general trend of the EUR/USD currency pair is still downward and the stability below the parity price supports the bears’ control over the trend for a longer period of time.
• The continued concern about the future of energy in the Eurozone will stimulate the bears to further move down and therefore the appropriate support levels for the currency pair may currently be 0.9920 and 0.9845 and 0.9790 respectively.
• On today’s chart, the current performance pushed the technical indicators towards oversold levels.

On the upside and in the same period of time, breaking the 1.0200 resistance pair of the euro will be an opportunity to break the downward trend. Today the euro will react to the announcement of the German inflation figures and the dollar will react to the announcement of the American consumer confidence reading.

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Even if we do rally from here, then it’s likely that we will see an opportunity to short this market again, especially as the US dollar has been like a wrecking ball against almost everything. 

The EUR/USD has gone back and forth during trading on Monday, as we continue to see the parity level attract a lot of attention. It’s worth noting that the market is simply chopping around, and it’s not doing anything right now. That does make a certain amount of sense that we are going to continue to see a lot of confusion around this area, just simply because there’s a lot of psychology attached to the idea of parity.

The US dollar will continue to be stronger than the Euro in general since the European Union has a whole host of issues that the United States does not have to deal with. The first one of course is going to be energy and the fact that it may be running out of energy. At this point, there are a lot of concerns about the EU energy supply this winter, and there does not seem to be anything out there changing the outlook for Europe. Because of this, the economic outlook for Europe must be thought of as poor at best.

Dollar Backed by Federal Reserve

• The US dollar is backed by a very hawkish central bank, one that is willing to fight inflation. In other words, interest rates are going up in America and that typically does help the currency.
• Beyond that, we also must look at this through the prism of simple momentum.
• The Euro has been falling for ages, and it does take quite some time to turn the entire trend around.

Even if we do rally from here, then it’s likely that we will see an opportunity to short this market again, especially as the US dollar has been like a wrecking ball against almost everything. The 50 Day EMA sits just above the 1.02 level, and I think then continues to be an area that people will pay close attention to. After that, the market then starts to focus on the will .04 level, an area that has been important a couple of times in the past, as it had previously been supported. “Market memory” could come into the picture and offer a certain amount of resistance selling. Either way, I don’t have an interest in buying the Euro anytime soon, and therefore I’m just looking to pick up the US dollar “on the cheap.”

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There is a possibility that the EUR/USD will continue falling as sellers target the next key support at 0.9850.

Bearish view

• Sell the EUR/USD and set a take-profit at 0.9850.
• Add a stop-loss at 1.0035.
• Timeline: 1-2 days.

Bullish view

• Set a buy-stop at 1.0025 and a take-profit at 1.0095.
• Add a stop-loss at 0.9950.

The EUR/USD price continued its bearish trend after a series of hawkish statements by the European Central Bank (ECB) and Federal Reserve officials. It dropped to a low of 0.9963, which was slightly lower than last week’s high of 1.0095.

Hawkish ECB and Fed

The EUR/USD resumed its bearish trend as investors reacted to last week’s Jackson Hole Symposium comments. In his speech, Jerome Powell reiterated that there will be some pain for both investors and consumers as it continued to battle the soaring inflation.

He said that the bank will continue with its hawkish tone until it sees a clear sign that inflation has started dropping. Data published this month showed that the headline inflation in the US dropped from 9.1% in June to 8.7% in July.

And on Friday, the closely watched PCE data showed that the country’s inflation continued dropping as gasoline prices pulled back. Therefore, analysts were expecting the Fed to start slowing down its hawkish tone in the coming meetings.

The EUR/USD price also dropped after several ECB officials reiterated that the bank will continue hiking rates in the coming months. Speaking at the Jackson Hole Symposium, Isabel Schnabel and Francois Villeroy Galhau said that a large sacrifice will be needed to tame inflation.

The two officials believe that the bloc’s inflation will continue soaring in the coming months. Analysts expect that the bloc’s inflation rose to a record 9% in August as gas prices surged. European gas prices rose to a record high of 343 euros per megawatt hour, which is sharply higher than where they were when the year started.

As a result, the EU will convene an emergency meeting to deliberate on the way forward since these prices mean that the bloc will likely head to a deep recession.

EUR/USD forecast

The four-hour chart shows that the EUR/USD pair has been in a strong bearish trend in the past few weeks. It managed to move below parity level for the second time this year last week. As a result, the pair remains below the 25-day and 50-day moving averages and is slightly above last week’s low of 0.9903.

The EUR/USD pair has also formed what looks like an inverted cup and handle pattern. Therefore, there is a possibility that it will continue falling as sellers target the next key support at 0.9850.

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The rising cost of European energy supplies has driven deep declines in many financial model-derived estimates of the single currency’s fair value this year, and with little respite on the horizon, some of the market’s most bearish forecasters are feeling upbeat about their EUR/USD outlook.

The EUR/USD will decline significantly in 2022. While factors such as the US economy and Fed policy have been a significant driver of this decline, it is the rising cost of energy supply disruptions that is giving most confidence to some other markets, which implies the eventual collapse of the euro.

The EUR/USD currency pair against the dollar EUR/USD fell last week to the 0.9900 support level, its lowest in 20 years, and in reaction to Jerome Powell’s statements, he tried to recover on Friday to the 1.0090 resistance, but he returned in his strongest downward path towards the 0.9964 support level and closed trading around it.

The euro gained a respite for most of the last week after falling below parity with the dollar during Monday’s session, but European gas prices remained at high levels after days of massive increases. These costs and their expected impact on companies and households alike is what prompts some forecasters to feel confident that the fall of the euro for more than 18 months may still have a long way to go.

The price of electricity in Germany will increase over the next year by more than 1000 US dollars in terms of Brent oil energy equivalent. This is far from normal, and so says Jordan Rochester, the expert at Nomura: “It is a crisis that does not only stem from the restricted energy supplies from Russia, but a series of unfortunate issues.”

In addition to energy constraints, the Eurozone faces the brunt of climate change with record-breaking flash floods and droughts, as well as slowing trade with China and the risk of a recession in the United States. However, we believe that the biggest challenge that Europe will face this winter is not inflation, but inflation accompanied by recession.

“This is why we expect the EUR/USD to drop to the 0.90 support this winter,” added Rochester.

European gas prices have more than doubled over the past week after the Russian gas monopoly said it would halt supplies through a key pipeline for three days in September, adding pressure on an already tight market. It is likely that the economic burdens created by these price increases will remain a headwind for the single European currency in the absence of credible supply-side responses from European countries to the ongoing Russian gas diplomacy.

“These incomprehensible price increases add pressure on European leaders to find a solution to the unfolding energy crisis that will put pressure on many families,” said Bas Van Giffen, chief economic analyst at Rabobank.

At the same time, American families are struggling to pay their utility bills. However, this situation pales in comparison to the rising prices faced by European consumers.

The rising cost of European energy supplies has driven deep declines in many financial model-derived estimates of the single currency’s fair value this year, and with little respite on the horizon, some of the market’s most bearish forecasters are feeling upbeat about their EUR/USD outlook.

Both Rabobank and Nomura have predicted a sustained break without parity in the EUR/USD rate over the coming months. According to their forecasts, the EUR/USD is likely to fall to 0.90 this winter with a terms of trade shock pointing to 1980s levels at 0.65 as a possibility.

Expectations of the EUR/USD:

• In the near term and according to the performance on the hourly chart, it seems that the EUR/USD currency pair is trading within the formation of an ascending channel.  This indicates a slight upward trend in the short term in market sentiment.
• Therefore, the bulls will target short-term profits at around 1.0039 or higher at 1.0083. On the other hand, bears will look to pounce on possible pullbacks around 0.9963, or lower at 0.9913.
• In the long term and according to the performance on today’s chart, it seems that the EUR/USD currency pair is trading within the formation of a descending channel. This points to a significant long-term downward wound in market sentiment.
• Therefore, bearish speculators will look to extend the current path of declines towards 0.9810 or lower to 0.9612. On the other hand, the bulls will target rebound profits at around 1.0182 or higher at the 1.03 level.

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EUR/USD

The EUR/USD has gone back and forth during the week, as we continue to hang around the parity level. At this point, it looks like we are taking a bit of a pause, but I think have to look at this through the prism of “fading short-term rallies” going forward. The market has gotten down to this level rather quickly, but now Jerome Powell has reiterated the hawkish attitude of the Federal Reserve, it’s likely that we will continue to see the US dollar reign supreme. I like fading rallies, especially near the 1.03 level if we get all the way up there.

GBP/USD

The GBP/USD initially tried to rally during the trading week but gave back gains as we continue to see a lot of negativity when it comes to the British pound, as the Bank of England has already stated that the United Kingdom is going into a recession. Because of this, the market is likely to continue fading rallies, and maybe even worse off than the Euro. If we were to break above the 1.20 level, then you might be able to make an argument for something else. Until then, this looks very bearish to me.

USD/JPY

The USD/JPY has pulled back slightly to kick off the week but then ended up rallying yet again. It looks as if we are eventually going to try to break above the recent highs, perhaps breaking through the ¥140 level. The ¥132 level underneath continues to be significant support, so I do like the idea of any pullback being bought into. If we break down below the ¥132 level, then we start to have other questions asked at that point. If the Bank of Japan continues to fight rising interest rates, this more likely than not will continue to be a “one-way trade.”

AUD/USD

The AUD/USD initially tried to rally during the week but gave back a lot of the gains at the 0.70 level. The market has seen a lot of volatility, and a lot of resistance at the 0.70 level. If we can break above the 0.70 level, then it is possible that we could go looking to the 50 Week EMA. However, it looks more likely than not that we are going to threaten the lows again after the Federal Reserve has spoken.

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The difference between success and failure in Forex / CFD trading is very likely to depend mostly upon which assets you choose to trade each week and in which direction, and not on the exact methods you might use to determine trade entries and exits.

So, when starting the week, it is a good idea to look at the big picture of what is developing in the market as a whole, and how such developments and affected by macro fundamentals, technical factors, and market sentiment. Read on to get my weekly analysis below.

Fundamental Analysis & Market Sentiment

I wrote in my previous piece on 21^st August that the best trades for the week were likely to be:

1. Short of the GBP/USD currency pair, which fell by 0.75%.
2. Long of Natural Gas, which rose by 1.04%.

This produced an average win of 0.90%.

The news is currently dominated by the Federal Reserve Chair Jerome Powell’s speech on Friday, which was received negatively by markets. Powell stated that inflation was still too high, too persistent, and too dangerous as a driver of long-term expectations to be met with anything other than tough monetary measures as part of a struggle to drive it down. Powell said this would necessarily cause some pain to the economy and he signaled there is no chance of a dovish pivot which some analysts had been hoping for after recent inflation data suggested that CPI has already peaked in the USA. Powell’s speech at the Jackson Hole symposium sent stock markets sharply lower, and hit risk sentiment hard, which sent money flowing into the US Dollar in the Forex market and out of riskier currencies such as the British Pound, the Euro, and the commodity currencies.

A 0.50% rate hike at the Fed’s next meeting is all but certain, while analysts now see a real chance of a 0.75% as an alternate possibility.

It is worth pointing out that although the US stock market had been rising in recent week, the US stock market has technically been in a bear market for some time, with the US yield curve being inverted for several weeks now. The US is also arguably in a recession, having seen two successive quarters of GDP contraction, although wages growth and the job market remain relatively buoyant. The case for recession was boosted by data released last week which showed that in Q2 2022, US GDP shrunk at an annualized rate of -0.6%.

To recap there were two other important economic data releases last week apart from the US Preliminary GDP data. The results were as follows:

1. US Core PCI Price Index data – the month-on-month increase was only 0.1%, lower than the 0.2% which had been expected, slightly boosting hopes that US inflation has already peaked.
2. US, UK, German, and French Flash PMI data – the results were mixed, but overall, more negative than had been expected, suggesting there may be a slowing in producer output in the EU, the UK, and the USA.

The Forex market saw a rise by the Australian and US Dollars last week. The rise was broad but especially strong against the New Zealand Dollar.

Rates of coronavirus infection globally dropped last week for the sixth consecutive week. The most significant growths in new confirmed coronavirus cases overall right now are happening in Japan, South Korea, Russia, and Taiwan.

The Week Ahead: 29^th August – 2^nd September 2022

The coming week in the markets is likely to show a slightly higher level of volatility than last week, with Friday’s higher level of market activity following Powell’s speech likely to continue. Releases due are, in order of likely importance:

1. US Non-Farm Payrolls, Average Hourly Earnings, and Unemployment data (plus the earlier forecast)
2. German Preliminary CPI data
3. US JOLTS Job Openings data
4. US CB Consumer Confidence
5. US ISM Manufacturing PMI data
6. Swiss CPI (inflation) data

Technical Analysis

U.S. Dollar Index

The weekly price chart below shows the U.S. Dollar Index printed a bullish candlestick which closed up, in line with the long-term trend, which is bullish. The weekly closing price is a 20-year high, and the week’s rise came after the price rejected the support level below just under 105.00 a few weeks ago. These are all bullish signs, and with the chair of the Fed giving a very hawkish speech a few days ago about the need for more rate hikes to fight US inflation, the bullish technical picture is supported by sentiment and monetary policy fundamentals.

It will probably be a good idea to look for long trades in the US Dollar over the coming week. This is a very powerful, long-term bullish trend in the most important currency in the Forex market, and it remains likely to continue if sentiment remains driven by the fear of ongoing interest rate hikes negatively impacting risky assets, with the US Dollar acting as a primary safe haven.

EUR/USD

Last week saw the EUR/USD currency pair print a bearish candlestick. This pair is technically interesting as it again printed the lowest weekly close seen in almost 20 years.

The Euro is beset by worry over the impact of ECB rate hikes which have begun and must continue. These hikes are going to put a severe strain on government bond markets in southern Europe, notably Italy.

The strength of the US Dollar and the technical breakdown we see here, plus fundamental headwinds against the Euro, see a short trend trade opportunity continue in this currency pair. However, it is probably helpful to use relatively wide trailing stop losses for this pair, as using ATR 3 has over the years produced better results than ATR 1.

GBP/USD

Last week saw the GBP/USD currency pair print a bearish candlestick. This pair is technically interesting as it printed the lowest weekly close seen since the coronavirus panic in March 2020.

The British Pound is troubled by fundamental woes, including new increased inflation figures above 10%, and a Bank of England forecast of a coming recession which will last for five quarters and see GDP shrink by 2.2%.

The strength of the US Dollar and the technical breakdown we see here, plus fundamental headwinds against the Pound, see a short trend trade opportunity continue in this currency pair. However, it is important to use relatively tight trailing stop losses for the British Pound, as using ATR 1 has over the years produced much better results than the more typical ATR 3.

NZD/USD

The New Zealand Dollar was the biggest loser of all major currencies last week, despite the RBNZ’s rate hike two weeks ago by 0.50% to 3.00%, the highest rate of any major currency. We finally see a technical breakdown below recent support here, with the price making its lowest weekly close since May 2020.

It is notable that the price closed right on the low of the week, which is a bearish sign.

There may be further bearish momentum in the NZD/USD currency pair over the coming week, with the NZD the weakest of all major currencies suggesting that this can be an interesting currency on the short side.

Natural Gas

Although we are seeing a bearish market with most commodities and risky assets shrinking against safe havens such as the US Dollar, we have seen Natural Gas gain very slightly over the past week to make new multi-year highs.

Volatility is very high and price movement can be extremely choppy.

Long natural gas can be an attractive trend trade as we are seeing a breakout in the price chart. However, anyone trading natural gas should be very, very mindful of the extremely high level of volatility we have seen here over recent months, and trade very small position sizes which respect the volatility.

What is even more concerning for anyone thinking of going long here is the fact that we see the current weekly candlestick form as an inverted bearish hammer, which hints that there may not be much upside left over the near term.

As commodities in general and energies are quite weak, I do not have strong faith in a long trade here, which is another reason to keep the position size very small if you are trading natural gas over the coming week.

Bottom Line

I see the best opportunities in the financial markets this week as likely to be short of the EUR/USD, GBP/USD, and NZD/USD currency pairs.

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Last week, I made no weekly forecast, as there were no unusually strong counter-trend price movements in the Forex market over the previous week. This week, I again make no forecast.

This week I will begin with my monthly and weekly Forex forecast of the currency pairs worth watching. The first part of my forecast is based upon my research of the past 20 years of Forex prices, which show that the following methodologies have all produced profitable results:

Let us look at the relevant data of currency price changes and interest rates to date, which we compiled using a trade-weighted index of the major global currencies:

Monthly Forecast August 2022

For the month of August, I forecasted that the EUR/USD currency pair would decline in value. The result so far is shown below:

Weekly Forecast 28^th August 2022

Last week, I made no weekly forecast, as there were no unusually strong counter-trend price movements in the Forex market over the previous week. This week, I again make no forecast.

The Forex market saw a strong decrease in directional volatility last week, with only one of all the important currency pairs or crosses moving by more than 1% in value. Directional volatility is likely to be higher over this coming week as there are a few major releases due, and the impact of Powel’s speech last Friday is likely to continue to drive markets as this week opens.

Last week was dominated by relative strength in the Australian and US Dollars, and relative weakness in the New Zealand Dollar.

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Key Support/Resistance Levels for Popular Pairs

I teach that trades should be entered and exited at or very close to key support and resistance levels. There are certain key support and resistance levels that can be watched on the more popular currency pairs this week.

Let us see how trading two of these key pairs last week off key support and resistance levels could have worked out:

EUR/USD

We had expected the level at $1.0070 might act as resistance in the EUR/USD currency pair last week, as it had acted previously as both support and resistance. Note how these “role reversal” levels can work well. The H1 price chart below shows how the price rejected this level following Jerome Powell’s hawkish speech near the start of last Friday’s New York session with a large bearish outside candlestick, marked by the down arrow signaling the timing of the bullish bounce. This is typically a great time of day to be entering trades in major Forex currency pairs. This trade has been profitable, but has achieved a maximum positive reward to risk ratio of less than 1 to 1 so far based upon the size of the entry candlestick.

GBP/USD

We had expected the level at $1.1878 might act as resistance in the GBP/USD currency pair last week, as it had acted previously as both support and resistance. Note how these “role reversal” levels can work well. The H1 price chart below shows how the price rejected this level following Jerome Powell’s hawkish speech near the start of last Friday’s New York session with a large bearish outside candlestick, marked by the down arrow signaling the timing of the bullish bounce. This is typically a great time of day to be entering trades in major Forex currency pairs. This trade has been profitable but has achieved a maximum positive reward to risk ratio of less than 1 to 1 so far based upon the size of the entry candlestick.

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• The EUR/USD rate remains stable under downward pressure below the parity rate though, there is little hope that even a significant hike in interest rates might rescue it.
•  The euro-dollar pair’s losses this week reached the support level of 0.9900, the lowest in 20 years, and it is settling around the 0.9970 level at the time of writing the analysis.
• The currency pair may remain stable around its losses until important and influential events, led by the announcement of the US economic growth rate today, and then the Jackson Hole symposium.

Rather than monetary policy, it is the interrelated threats of a recession and a Russian energy halt that are weighing on the single European currency – the euro -, according to analysts. Although traders are now preparing for a one-percentage point rate hike by October, such dynamics are difficult for the ECB to contend with, even if it uses the kind of massive moves in borrowing costs that the Federal Reserve recently enacted.

Investors are boosting the European Central Bank’s bets and are pricing in one point of the gains by October. “Price has not been in the driving seat in the forex markets, particularly in the last month – and it really is about the dynamics of global growth,” said Sam Ziv, FX analyst at JPMorgan Private Bank. They are not supportive of currencies when they are made to keep inflation expectations steady and hurt growth expectations at the same time.”

Borrowing Costs are Raised

Facing the fastest rate of inflation since the introduction of the euro, the European Central Bank raised borrowing costs for the first time in more than a decade last month, raising its deposit rate by half a point to 0%. As investors anticipate another move of this magnitude on Sept. 8, storm clouds are converging over the 19-nation eurozone economy, as the cost-of-living crisis and Russia’s invasion of Ukraine put pressure on households and businesses.

Business surveys released Tuesday by S&P Global showed activity contracting for a second month, with the pandemic rebounding in areas like tourism almost to a halt. Meanwhile, a weak euro, which hit a two-decade low against the dollar this week, is boosting inflation by making imports more expensive – a particular concern when most of the region’s inflation is driven by energy that is largely priced in dollars. The bleak background means that even an unprecedented three-quarters of a point rate hike will not beneficially boost the euro, according to Dirk Schumacher, economist at Natixis in Frankfurt.

Indeed, ECB Executive Board Member Fabio Panetta on Tuesday urged caution in planning next steps as the prospect of a downturn in the eurozone becomes more likely than ever. “If we had a big slowdown or even a recession, that would ease inflationary pressures,” he added at a panel discussion in Milan. However, colleague Isabel Schnabel acknowledged the negative impact of a weak currency on inflation expectations, telling Reuters that it is all the more important when the economy faces an energy price shock. Money markets priced a half-point increase next month and put odds of 20% at 75 basis points. Moreover, traders are betting 130 basis points to tighten by the end of the year, with the deposit rate eventually rising to 2% by September 2023.

Euro forecast against the dollar:

I still see that the EUR/USD may hold on to its recent losses until the reaction from the Jackson Hole symposium. It is clear that he is ignoring the results of the US economic data and focusing more heavily on that seminar. The general trend of the EUR/USD pair is still bearish and stability below the parity price will move the bears towards stronger support levels, the closest to them currently are 0.9920, 0.9855 and 0.9790, respectively.

On the upside and according to the performance on the daily chart, breaking the resistance 1.0200 will be important to breach the sharp bearish channel recently. Today, the euro will be affected by the announcement of the growth rate of the German economy, along with the reading of the Ifo index, and the US dollar will be affected by the announcement of the growth rate of the US economy and the number of jobless claims.

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It’s likely that we continue to see more downward pressure than up, so I have absolutely no interest in buying this pair anytime soon.

The EUR/USD has broken through parity again during the trading session on Monday and has now left the parity level behind. In fact, it looks like the Euro is going to try to go down to the $0.99 level, and beyond. I have been saying for a while that if we give up parity, it’s very likely that the first target will be the $0.98 level, and there’s nothing on this chart that remotely suggests that we are not going to at least try to get down there.

• Rallies at this point will be probably best thought of as the market offering “cheap US dollars”.
• We will be looking for signs of exhaustion after short-term rallies that I can start shorting again. 
• This pair is extraordinarily choppy, but it does tend to move very slowly overall.

In that scenario, you may need a day or 2 of bullish pressure to bring back the sellers. However, we could also break down below the bottom of the candlestick for the session on Monday, opening up a flood of fresh selling. At that point, the Euro is going to go looking into the $0.99 level.

Rallies at this point will be looked at with suspicion, even if we can break above the parity level. At that point, the $1.01 level, the $1.02 level, and the 50 Day EMA all offer potential resistance barriers as well. Because of this, the market will almost certainly have to pay close attention to signs of the markets selling off and look at them as an opportunity to pick up “cheap US dollars.” That of course is what you’re hoping for, the opportunity to short at higher levels in what is a strong and reliable downtrend.

The Europeans have a mess on their hands, as energy is not necessarily guaranteed to the continent this winter, and that has put on quite a bit of pressure when it comes to the manufacturing sector, as natural gas may have to be rationed. In that scenario, it’s obvious that the economy would slow down quite drastically, forcing the ECB to be extraordinarily loose with its monetary policy. As things stand right now, it’s likely that we continue to see more downward pressure than up, so I have absolutely no interest in buying this pair anytime soon.

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EUR/USD plummets to new 19-year low.

My previous EUR/USD signal last Wednesday produced a losing short trade from $1.0195, although the same level was later rejected to provide the high of the day, so I was correct about that resistance level.

Today’s EUR/USD Signals

Risk 0.75%.

Trades may only be entered between 8am and 5pm London time today.

Short Trade Idea

• Go short following a bearish price action reversal on the H1 timeframe immediately upon the next touch of $0.9950 or $1.0000.
• Place the stop loss 1 pip above the local swing high.
• Move the stop loss to break even once the trade is 20 pips in profit.
• Take off 50% of the position as profit when the price reaches 50 pips in profit and leave the remainder of the position to run.

Long Trade Ideas

• Go long following a bullish price action reversal on the H1 timeframe immediately upon the next touch of $0.9900, $0.9850, or $0.9800.
• Place the stop loss 1 pip below the local swing low.
• Move the stop loss to break even once the trade is 20 pips in profit.
• Take off 50% of the position as profit when the price reaches 20 pips in profit and leave the remainder of the position to run.

The best method to identify a classic “price action reversal” is for an hourly candle to close, such as a pin bar, a doji, an outside or even just an engulfing candle with a higher close. You can exploit these levels or zones by watching the price action that occurs at the given levels.

EUR/USD Analysis

In my last analysis of the EUR/USD currency pair on 17th August, I saw the technical picture as more bearish following the breakdown below the ascending trend line, which was confluent with a clear level of resistance at $1.0195, which was also quite confluent with the round number at $1.0200. I saw a short from there as the best potential trade of the day and I was not wrong, although the initial rejection during the New York session saw the high exceeded again later.

The technical picture now is even more bearish, as the price plummets through blue sky to new 19-year lows which have not been seen since 2022, well below parity.

There are no obvious support levels, except perhaps round and half numbers.

There is strong bearish momentum, and longer-term traders could have a good opportunity to go short if we see a bullish retracement to $0.9950 or even the parity level at $1.0000.

Shorter-term traders can try to ride the momentum by selling rallies on short-term time frames, perhaps being cautious of trading right into any major round numbers.

Trend traders will not want to miss the bearish momentum here.There is a very strong bullish market and long-term trend in the US Dollar, with the Euro one of the weakest major currencies (the British Pound is the other), so we can expect plenty of action here today as this pair is in the market’s focus.

Concerning the USD, there will be a release of Flash Services PMI data at 2:45pm London time. Regarding the EUR, there will be releases of French, German, and British PMI data between 8:15am and 9:30am.

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