This is a new bearish trading week for the price path of the EUR/USD currency pair. New losses affected the support level 1.0674, which is stable around it at the time of writing the analysis, which is the strongest losses for the currency pair in more than two months. A temporary solution to the US debt crisis and signals of tightening the US Federal Reserve’s policy brought the dollar more positive momentum against the rest of the other major currencies.
It appears that we have finally cleared the deadlock in the US Debt Ceiling talks. Over the weekend, US President Joe Biden and Republican House Speaker Kevin McCarthy made some significant progress in avoiding a historic default, which could happen on June 1. A country on this planet constantly engages in this partisan brinksmanship – but it is a welcome development in terms of bringing some stability to the financial markets.
- The EUR/USD is still bearish, and stability below the psychological support 1.0800 confirms the bears’ control over the trend.
- Its extended losses make forex investors look for an opportunity to buy the most popular currency pair.
- Technical indicators are heading towards oversold areas, and the support levels at 1.0630 and 1.0570 may have buying opportunities without taking risks.
On the other hand, there will be no opportunity for the bulls to regain control of the direction of the EUR/USD currency pair without returning to the vicinity of the psychological resistance level of 1.1000. This first requires a return to the vicinity of the resistance levels 1.0830 and 1.0900, respectively. The EUR/USD will be affected today by the release of the German inflation reading and the first US jobs data.
According to the Elliott Wave theory, the cycle consists of an impulse wave and a corrective wave. More precisely, a five-wave structure followed by one of three waves completes the Elliott cycle, and this is what one can see on the daily timeframe of EUR/USD. The market bottomed out last October, when it started a significant rally from below parity all the way to the 1.10 region. This is the impulsive wave. What followed was the classic a-b-c pattern, a flat pattern that looks like it’s finished or about to.
The time element favors more upside. One of the main factors when using the Elliott Wave theory is the time factor. The time parity of corrective and impulsive waves is often preceded by a strong impulse wave, an extended wave.
This means that EUR/USD should finish a second wave around the current levels before the extended third wave begins. At the same time, Fibonacci levels provide strong support.
Finally, if one uses the Fibonacci retracement tool and measures the length of the impulsive wave, he will notice that the levels of 38.2% and 23.6% provided strong support for this market. In other words, the flat pattern, or the a-b-c pattern, appears to have a so-called “failure,” which is a strong indicator of the strength of the opposite trend. All in all, shorting EUR/USD from here is very risky. While one could fundamentally build a strong case against the EUR, technically speaking, this could be where EUR/USD builds up energy for another line higher.
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