EUR/USD Technical Analysis: Cautious Stability, Narrow Range

The bearish trend in the EURUSD exchange rate is expected to extend over the coming days as analysts see little of the supportive scenarios presented at the European Central Bank and the US dollar’s bullishness becomes increasingly entrenched. At the beginning of this week, the price of the EUR/USD pair stabilizes in a narrow range between the level of 1.0698 and the level of 1.0759 and the general trend is still downward.

The euro had peaked at 1.12 just above on July 18, and has been stuck in a one-way price movement since then with the pullback extended to a low of 1.0699 last Friday with little sign of a turning point. Analysts believe that the EUR/USD exchange rate now looks poised to anchor below 1.07 if the European Central Bank fails to strike the right chord on Thursday and midweek data from the United States is hotter than expected.

Commenting on the performance of the Euro/Dollar, Chris Turner, forex analyst at ING Bank N.V. says: “The Euro/Dollar pair EUR/USD remains weak as the American data remains strong and the news from the Eurozone and China remains gloomy.” And “there seems to be no reason for the EUR/USD pair to bounce back and the constructive pressure may lead to levels below 1.0700.” For his part, Fouad Razzaqzadeh, analyst at Citi Index, says: “It seems that more weakness is possible for the euro/US dollar pair, especially since the dollar seems very strong in all areas.” The analyst also explains that the EUR/USD pair and other euro currencies have come under pressure in recent weeks, due to growth concerns in both the euro area and China, where the latter is one of the largest export destinations for European goods.

Valentin Marinov, forex currency analyst at Credit Agricole Bank, says: “After reaching 1.12 in July, the EUR/USD pair began to decline sharply towards its lowest levels during the year.” The fears of the inflationary stagnation in the Eurozone in addition to the fears regarding the global growth expectations.”

Last week saw Eurozone PMI data for August revised sharply to levels consistent with deflation and Eurozone GDP for the second quarter revised down to just 0.1%. At the same time, the German industrial figures confirmed that the established slowdown in the largest economy in the region continues to deepen. As a result, “the probability of the final interest rate at the European Central Bank meeting fell sharply.”

There is a consensus that the European Central Bank will not announce any change, but it is almost certain that the guidance will be more important for the euro than the final decision. That’s because the market currently puts minimal weight on where interest rates peak, rather than focusing on how long interest rates can be sustained at the peak level. This means that the euro could fall even if the European Central Bank surprises with an interest rate hike, but the market sees that this rise will ultimately be reversed sooner given the slowdown in economic growth. The decision to keep interest rates unchanged could at the same time delay the timing of the first interest rate cut, ultimately supporting the euro, although there appears to be little in the way of “tightening” results for the central bank given the slowdown in economic growth.

• There is no change in my technical point of view as I expect the downward momentum of the EUR/USD currency pair to continue until the markets and investors react to the European Central Bank’s policy decisions later this week.
• The closest targets of the bears to the current trend are the support levels 1.0645, 1.0580 and 1.0490 respectively.
• The purchase will be ideal from the second and last level.
• Taking into account that the recent losses moved the technical indicators towards strong selling saturation levels, but the factors of the dollar’s strength are in effect.

According to the performance in today’s chart below, there will not be a first break in the general downward trend without a movement of the euro/dollar pair towards the resistance levels 1.0860 and 1.1000 respectively. Today the Euro will react to the announcement of the German ZEW reading.

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