EUR/USD Technical Analysis: Tests its Lowest Level

The euro reached parity against the dollar last year, but it rebounded during the first half of 2023, driven by improved growth dynamics in the euro area, partly linked to lower energy prices. 

• The downward path of the EUR/USD currency pair was the most prominent during this week, as the EUR/USD pair moved towards the 1.0448 support level, its lowest during the year 2023.
• It stabilized around its losses at the time of writing the analysis, and the performance remained the same without taking into account the technical indicators reaching strong selling saturation levels, as the US dollar is still the strongest due to expectations of a US interest rate hike.
• Statements by US Central Bank officials and the results of economic data still support the dollar’s gains.

According to official figures, job opportunities in the United States unexpectedly increased in August, another sign that the US labor market remains strong despite rising interest rates – and perhaps too strong for the Federal Reserve’s inflation warriors. In this regard, the US Department of Labor said on Tuesday that American employers registered 9.6 million job opportunities in August, up from 8.9 million in July, which is the first increase in three months. Economists had expected only 8.9 million more job openings. The number of layoffs and people leaving their jobs — a sign of confidence in their prospects — was essentially unchanged since July.

Analysis of the world’s most comprehensive data set on how investors are positioned in forex markets suggests that the euro price may be on its way to testing parity with the dollar again.

In this regard, Bilal Hafeez, head of the research department at Macro Hive, said thar “We believe that positions could continue in a more bearish direction, with the possibility of the euro weakening further.”

The analyst looked at the latest options strike positioning data from CME Group and found that it “suggests a potential return to parity, with strong demand for put options until at least 1.03.”

The results indicate that the market is increasingly seeing levels below the 1.03 support level as possible as traders with options set at 1.03 will only start making profits when the Euro to Dollar exchange rate moves below.

“There is noticeable net demand for the EUR/USD pair from 1.07 to 1.03,”  continued the analyst, “This means that investors need to trade EUR/USD at least below these levels to record a return on their put options,” he added.

The euro reached parity against the dollar last year, but it rebounded during the first half of 2023, driven by improved growth dynamics in the euro area, partly linked to lower energy prices. However, the renewed economic slowdown in the region is out of proportion to the strong performance of the US economy, which has already seen the euro fall against the dollar by about 5% in the second half.

On the other hand, energy has returned to the agenda with the rise in oil and gas prices. Accordingly, the analyst said that “With Europe being a net importer of energy and the United States a net exporter, the euro has found another reason to falter.”

Analysis of market positions reveals that hedge funds closed 24.8 thousand long positions and opened an additional 5.5 thousand short positions over the past month, leaving them net short on the euro by 23.3 thousand futures contracts.

Rising energy prices are positive for the energy-rich US economy. The analyst explained that further support for the dollar comes at a time when US investors remain reluctant to buy foreign bonds, which previously weighed on the US dollar.

There is no change in my technical point of view, as the general trend of the EUR/USD pair is still bearish, and moving around and below the support level of 1.0500 still confirms the strength of the bears’ control over the trend, and at the same time with it. At the very least, the technical indicators are moving towards strong oversold saturation levels and will not There will be an opportunity for the currency pair to rebound upward without numbers lower than all expectations for American jobs this week, and according to current performance, the first break of the general trend will be by moving towards the resistance levels of 1.0620 and 1.0775, respectively.

On the other hand, if the US jobs numbers support further tightening of the US Central Bank’s policy, a move towards deeper support levels cannot be ruled out, the closest of which are currently 1.0420 and 1.0330, respectively. The EUR/USD will be affected today by the statements of European Central Governor Lagarde, then the ADP reading of the change in US non-farm jobs and the ISM purchasing managers’ index reading for services.

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