They key factor dominating the Forex market now is the strong US Dollar, which made a new 18-month high price yesterday. US treasury yields remain elevated, very close to the 20-year highs, supporting a strong USD. The key question facing traders in the EUR/USD currency pair now is how much further this bearish trend has to run, and whether the rounded bottom rejecting 1.1150 we saw just a few hours ago is still relevant.
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EUR/USD Fundamental/Sentimental Analysis
The US Dollar retains a bullish fundamental bias, supported by elevated US yields, persistent inflation concerns and expectations that the Federal Reserve could tighten policy further (although probably in December and not at the Fed meeting at the end of this calendar month). Geopolitical uncertainty (Iran, Russia) is also sustaining safe-haven demand, although the currency’s retreat from recent highs suggests investors are cautious about chasing the rally ahead of Wednesday’s US inflation report. Stronger inflation data tomorrow would reinforce US Dollar support, while a softer reading could trigger profit-taking and temper expectations for additional rate increases.
The Euro’s outlook remains cautious, with French fiscal concerns, pressure in European bond markets and weaker investor confidence weighing on sentiment. Elevated energy prices present a difficult mix: they sustain inflation and limit the ECB’s scope to ease but also threaten growth rather than providing unambiguous support for the currency. Against the dollar, a sustained recovery would likely require easing French bond-market stress or softer US data that narrows the expected interest-rate advantage of the US; until then, euro rebounds look vulnerable.
EUR/USD Technical Analysis
The price action over the past few days has continued to print lower lows, reaching a new 17-month low price at about 1.1150. It is worth noting that the price found it hard to fall to its recent lows, with the price action rejecting the 1.1165 area three times over the past few days. We finally got a break lower, but it found support at 1.1150 and printed a rounded bottom which is currently driving the price higher.
Many analysts point to 1.1200 as a key level now. but I see the pivotal point as a bit lower, or at least starting from 1.1186. A sustained break above 1.1200 will be a bullish sign, but not an especially strong one – there are two strong support levels between there and 1.1250, and it is these that will likely pose a tougher test for bulls.
This currency pair is prone to deep retracements within trends, has historically tended to trend very reliably, and is now in a strong long-term bearish trend. These factors suggest that entering a short trade upon the firm rejection of any key resistance level will be the best strategy to pursue here today.
My Take on EUR/USD
I see an eventual move lower as the more likely outcome, and certainly the more tradable outcome. Trend following funds and institutions will still be short. I think a turn at a resistance level which takes a few hours could be an excellent signal for an end to this bullish retracement, which would also be a good signal to enter a new short trade here.
Review, Support & Resistance Levels
In my previous EUR/USD signal on 28th September saw this pair as bearish below 1.1375 which was a great call.
Risk 0.75%.
Trades may only be taken prior to 5pm London time today.
Short Trade Ideas
Short entry following a bearish price action reversal on the H1 timeframe immediately upon the next touch of $1.1187, $1.1222, or $1.1233.
Put the stop loss 1 pip above the local swing high.
Adjust the stop loss to break even once the trade is 20 pips in profit.
Remove 50% of the position as profit when the price reaches 20 pips in profit and leave the remainder of the position to ride.
Long Trade Ideas
Long entry following a bullish price action reversal on the H1 timeframe immediately upon the next touch of $1.1150, 1.1100, or $1.1050.
Put the stop loss 1 pip below the local swing low.
Adjust the stop loss to break even once the trade is 20 pips in profit.
Remove 50% of the position as profit when the price reaches 20 pips in profit and leave the remainder of the position to run.
The best method to identify a classic “price action reversal” is for an hourly candle to close, such as a pin bar, a doji, an outside or even just an engulfing candle with a higher close. You can exploit these levels or zones by watching the price action that occurs at the given levels.
There is nothing of high importance scheduled today concerning either the Euro or the USD.
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