The EUR/USD will begin trading this week near mid-term lows after being driven downwards on Friday with strong velocity.
Speculators anticipating a sudden reversal higher in the EUR/USD last week saw no evidence of upwards buying action being able to take hold. The EUR/USD started last Monday near its highs for the week and drifted downwards on a steady basis. The solid bullish trend the EUR/USD enjoyed has been brushed aside, and buying of the currency pair was hopefully not wagered on too aggressively last week by speculators while pursuing a sudden climb.
The EUR/USD will begin this week of trading near the 1.05450 ratios, which it last saw on the 6th of January. The EUR/USD has correlated to the broad Forex market as the USD continues to demonstrate strength, based on the notion the U.S Federal Reserve will have to remain aggressive regarding interest rate hikes in an effort to ward off inflation which continues to show signs of life.
Contrarian Speculators may look for an Upside in the EUR/USD but Caution is advised
Technically the EUR/USD sustained momentum below the 1.06000 ratios on Friday and continued to sell off before the markets closed for the weekend. Thursday did see the 1.06000 level tested too, but when touched briefly was able to exhibit a short reversal higher. The ability to retest short-term lows on Friday and sustain price action to new depths will certainly raise the prospect of nervous sentiment lingering among speculators this week.
Bearish speculators who have been following the trend lower have likely had good results because violent reversals in the EUR/USD have not been produced recently. The inability to produce a strong amount of buying upward the past week is also an indication behavioral sentiment in the EUR/USD likely remains downcast. Traders who have been anticipating a reversal of fortune on the notion the EUR/USD has been oversold may feel like they are spitting into the wind as they fight the lower trend which has been solid since early February.
- This coming Wednesday the U.S. will see a Consumer Confidence reading, if the number is stronger than expected this could cause additional weakness for the EUR/USD.
- Higher inflation via U.S economic reports remains troubling. Last week’s U.S. growth numbers were slightly below expectations, but higher prices for consumer goods remain concerning for the U.S. Federal Reserve.
The speculative price range for EUR/USD is 1.04785 to 1.06890
The EUR/USD is near important mid-term lows which are now touching values not seen since early January. While many speculators may feel the EUR/USD has been oversold they should understand the trend lower has been strong and has not shown many signs of suddenly stopping. Obviously moves upward will be seen, but behavioral sentiment has taken the EUR/USD lower and traders should look at three-month charts to consider where momentum downwards may cease.
The ability to puncture the 1.06000 level on Friday and sustain lows was important. If the EUR/USD opens trading this week with more selling and tests the 1.05400 to 1.05200 this would cause more nervousness. Downside potential exists, and if the EUR/USD were to suddenly challenge a vulnerable 1.05000 ratio, this could cause very choppy price action and plenty of volatility.
Speculators looking to buy on lows and simply scalp the EUR/USD slightly higher on what is perceived as technical support should be cautious. The ability to incrementally continue lower last week is a large warning sign. However, the EUR/USD could be helped by a psychological barrier developing around the 1.05100 to 1.05200 mark. If buying begins to be seen and the levels hold, traders and financial houses may feel like the worst of the economic inflation outlooks has been digested. Higher interest rate hikes from the U.S. Fed have likely not been full price into the EUR/USD yet. Traders need to be careful if they are pursuing higher price action and not be overly ambitious in the near term.