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• There can be no denying the EUR/USD sunk to lows on Friday on the power of a bad outcome between Donald Trump and the Ukrainian President.
• The EUR/USD optimism which was seen early last week evaporated and the currency pair went into the weekend at its lows. Talk is being heard from the U.S, Europe including the Ukraine, and other nations via hopes that a resolution can still be worked upon.
• However, financial institutions clearly showed they are in no mood for optimism on Friday and took the EUR/USD lower quickly. The move wasn’t massive, but it was certainly an effect from bad behavioral sentiment regarding near-term perspectives.
• The EUR/USD which had been thought to be oversold in the second week of February, now faces an upcoming test in which support levels could once again be challenged if noise continues that is viewed badly.

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Support Levels in the EUR/USD if Things Go Poorly

Short-term technical traders who do not want to pay attention to the political storm between the Ukraine and the U.S may want to consider support as a place to look for oversold conditions. The question is where support levels will continue to prove durable. The ability of the EUR/USD to go into the weekend near lows will be quickly tested upon its opening tomorrow, and then when the European Forex markets open things could get more volatile.

Developments via the White House and the Ukraine over the next handful of hours leading into Monday will also factor in behavioral sentiment on the opening. Traders who do not have deep pockets are advised to sit on the sidelines early tomorrow to see how the potential storms develop. The entire week could easily be dominated by the Ukraine – U.S dialogue or lack of it.

European Central Bank and the EUR/USD

Some traders asking about the implications of the political saga developing have a reasonable case if they believe some of the noise is overdone. Yet, behavioral sentiment and outlook is affected by the type of conditions being seen because they affect mid-term perspectives.

• The ECB will hold its monetary policy meetings this week and many analysts have been expecting another interest rate cut.
• While the European Central Bank’s decision will be important, the cut has largely been factored into the trading of the EUR/USD already.
• Questions surrounding oversold support levels will be heard in the coming days.
• If financial institutions become calm, there is reason to suspect the EUR/USD could reverse higher, but betting on direction this week will be affected by political noise.

EUR/USD Weekly Outlook:

Speculative price range for EUR/USD is 1.02950 to 1.05200

Day traders need to watch Monday’s opening intently. They should look to see how much volatility develops in the first handful of hours when Europe is trading and the U.S financial institutions enter the marketplace. The EUR/USD around the 1.03500 level would appear to be oversold, but the question is where financial institutions will start to react and become buyers again. The lows seen on Friday were not violent, but they were a warning sign.

If rhetoric stays loud between the U.S and the Ukraine regarding a lack of a resolution this would spark more nervousness. The tendency to try and be optimistic is understandable and this may lead to some buying in the EUR/USD this week, but conditions are likely to be choppy until clarity is delivered. Financial institutions will be nervous early this week and the EUR/USD could prove rather prone to swirling sentiment depending on noise levels. Looking for upside in the EUR/USD may be a solid bet but it will have to be done carefully, and the knowledge that if things get worse before they get better regarding political noise, whipsaw trading may remain the norm.

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