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Fundamentals

During Wednesday's (July 26th) Asian session, the EUR/USD oscillated narrowly, and it is currently trading at 1.1050 with oscillations. After descending from the high of 1.1280 for 6 consecutive days, EUR/USD may continue to fall today. Besides, this wave of depreciation resulted from both the USD rebound and the continuous decline in the eurozone's economy, especially in July, the release of the eurozone's PMI data plummeted beyond the market expectations. Such a surprising result exacerbated the market's concern about the European economy, as well as the expectation that the ECB will stop interest rate hikes starting from this week. In addition, it is noted that the EUR/USD exchange rate may keep the weak pattern in the short term, but it could be just a section of the long-term upward trend in the retracement if we consider the previous pattern. Thus, investors need to pay close attention to the next meeting of the ECB. If it continues to emphasize the inflationary pressures and the determination to fight inflation with interest rate hikes, the EUR/USD exchange rate is also likely to rise further. Instead, if the ECB raises interest rates under pressure, and confirms a suspension on future rate hikes, then, the EUR/USD will keep descending.

Data: According to the data released on July 24th, 2023, the HCOB Eurozone Composite PMI preview value (for 20 European countries' business) dropped from June's 49.9 to July's 48.9, an eight-month low, and its manufacturing PMI fell even more seriously to 42.7, the lowest point in 38 months. Moreover, the eurozone's two largest economies, Germany, and France's PMI also both fell more than market expectations: Germany's PMI fell to 48.3 in July, the lowest point this year, where the sluggish manufacturing PMI was only 38.8, continuing the downward trend. France's situation is worse, the PMI fell to 46.6 in July, which is the lowest point in 32 months.

Technical Analysis

Regarding the daily chart, the 5-day SMA crossed below the 10-day SMA, and a death cross appeared in the MACD. Shortly, EUR/USD is weak, but it is supported by the 20-day SMA, and it is impossible to turn bearish completely. As it was mentioned, the resistance (1.1280) and the support (1.1170) are worth attention. If EUR/USD plunges below 1.1170, investors should move the target to 1.10. Currently, EUR/USD is at 1.10, which is the lower area of the ascending channel that started from June. This support is sufficient, and there have been doji stars at the bottom in the past two days, showing a pattern of two-doji-stars candlestick pattern. Therefore, EUR/USD is expected to rebound later.

Trading plan: Aggressive investors should go long with small positions at 1.1030 and set the stop-loss at 1.1000. Meanwhile, the first target to take profits partially will be 1.1150 and investors need to move the stop-loss to breakeven. The second target is 1.1250.

Trading Recommendations

Trading direction: Long

Entry price: 1.1030

Target price: 1.1150

Stop loss: 1.1000

Support: 1.1000/1.0850

Resistance: 1.1150/1.1280