We have arguably been trading in a weak and very slow downwards trend over the past few months. However, things now seem to be accelerating in the EUR/USD currency pair, with the US Dollar maintaining its recent strength, and the price hovering right at the low of the day, which is also very confluent with the two-week low price.
EUR/USD Fundamental/Sentimental Analysis
This is driven much more by the US Dollar than the Euro, and this is quite typical for the Forex market, which sees about 75% of its volume from exchanges involving the greenback. The US Dollar may have entered a critical phase, with Warsh’s stewardship of the Fed now heading in a more hawkish direction than was widely foreseen. The CME FedWatch tool now shows a 68% expectation that the Fed will hike its interest rate by 0.25% at its next policy meeting, which will be held later this month. At the start of this week, that figure was only 60%, so momentum is moving in favour of a rate hike. The end of this week will bring NFP and Average Earnings data which will likely influence the relative value of the greenback.
Turning to the Euro, the big question here is not whether the ECB will hike its interest rate next week – that is taken as a given – but whether it will signal a course of further hikes, and that will almost certainly depend upon the estimated impact of energy-driven inflation within the Eurozone. Right now, markets are expecting only the one hike, and that is helping weaken the Euro.
EUR/USD Technical Analysis
A look at the long-term chart shows that there has been slow bearish trend. I wouldn’t quite call it a real long-term trend, but it is clear the market has preferred to move lower over moving higher for some months, overall.
The bearishness has begun to accelerate, with the short-term price action over recent hours forming a bearish descending price channel, shown within the price chart below as a linear regression study.
There are very weak and provisional initial signs of a potential bullish bottom at the two-week low of 1.1574. I think this low will likely be broken, so the best potential set up here will likely be a short trade from a rejection of a resistance level.
My Take on EUR/USD
I see a retracement to 1.1586 or even the horizontal resistance level above that confluent with 1.1600, followed by an immediate bearish rejection, as giving a potentially good opportunity to enter a new short trade.
However, bears should beware that the price was unable to break below the 2-week low (seen at the low to the left of the current price action in the price chart above), and this might signify a new bullish move.
I suspect that 1.1600 will be a good line in the sand to draw as a pivotal point – if the price can get established today above that area, it will be a bullish sign.
Review, Support & Resistance Levels .
In my previous EUR/USD signal on 27th July
Risk 0.75%.
Trades may only be taken prior to 5pm London time today.
Short Trade Ideas
Short entry following a bearish price action reversal on the H1 timeframe immediately upon the next touch of $1.1586, $1.1605, or $1.1660.
Put the stop loss 1 pip above the local swing high.
Adjust the stop loss to break even once the trade is 20 pips in profit.
Remove 50% of the position as profit when the price reaches 20 pips in profit and leave the remainder of the position to ride.
Long Trade Ideas
Long entry following a bullish price action reversal on the H1 timeframe immediately upon the next touch of $1.1557 or $1.1528.
Put the stop loss 1 pip below the local swing low.
Adjust the stop loss to break even once the trade is 20 pips in profit.
Remove 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.
There is nothing of high importance scheduled today concerning either the Euro or the USD.
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