فصل 48 07/25 EURUSD: Downward Pattern of "Down - Flat - Down" Has Been Developing
Abstract: On Tuesday, the USD maintained its bullish performance, forcing the EURUSD to fall further, and hit a recent low in the "down-flat-down" decline structure.
Fundamentals
The tension of Central Bank Super Week will spread to the European Central Bank (ECB) on Thursday. It is also certain that the ECB will raise interest rates by 25 basis points. However, since several policymakers are opposed to raising interest rates in September, what President Lagarde will say will be the focus of market attention.
If she also softens her stance, the EUR may further decline, and the EURUSD may march into the range of 1.0830-1.0900, which provided strong support in June and July. A break below will confirm a lower low and a continuation of the downward trend. If Lagarde appears as a hawk and ignores the signs of economic slowdown in the eurozone, the rebound may be aimed at the threshold of 1.1300.
We believe that it is reasonable for the ECB's tightening cycle to be suspended after July. Due to high inflation, rapid interest rate increase, weak global trade, geopolitical risks, and energy transformation, the eurozone economy is currently faltering.
PMI data in July showed that economic activity began to be very weak in the third quarter. It is expected that the ECB will raise interest rates by 25 basis points this week and raise the deposit rate to 3.75%, but this is likely to be the last rate hike in the current cycle.
Although the ECB may need to raise interest rates further, the rapid increase in interest rates in the past 12 months must take some time to work. The rate hike cycle should no longer be carried out according to the preset route.
Technical Analysis
Earlier on Tuesday, the EURUSD hit an intraday high in the range of 1.1085-1.1090 but failed to maintain its upward trend, leading to a pullback to an intraday low near 1.1040. The lower-than-expected business climate in Germany and the continued upward trend of the USD contributed to this downward trend.
Momentum indicators suggest a cautious bearish bias in the near term. Specifically, the MACD remains below the positive zone, while stochastic continues to fall after forming a bearish crossover.
Fresh bears have re-emerged and could take the EURUSD below the 20-day SMA at 1.1040, a support level that overlaps with the start of the previous sell-off. A break below this level could pave the way for the previous starting point at 1.0902. Failure to stay here could send prices down toward the monthly bottom at 1.0833.
On the other hand, if the price reverses higher, recent highs at 1.1276 could limit initial gains. After overcoming this threshold, bulls may push the price towards the psychological barrier at 1.1300; after that, the Fibonacci extension of 1.1370 at 1.1372 could be a strong ceiling. Further upward attempts may stagnate near the peak of 1.1495 in February 2022.
Overall, the EURUSD appears to be facing some downside pressure on the back of an overall rise in the USD. However, in order to confirm a broader downside correction, the EURUSD needs to break above its 20-day SMA. The momentum is currently positive, and it is recommended to go short at the highs.
Trading Recommendations
Trading direction: Short
Entry price: 1.1080
Target price: 1.0863
Stop loss: 1.1280
Deadline: 2023-08-08 23:55:00
Support: 1.1014, 1.0993, 1.0940
Resistance: 1.1120, 1.11611.1230
