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The ability of the EUR/USD to reach a high of nearly 1.12760 last Tuesday touched a value not seen since late February of 2022. However, after reaching this apex long-term high early last week, the EUR/USD also mirrored broad Forex conditions and started to produce a rather fast sell-off which escalated as the weekend approached. The EUR/USD will begin trading tomorrow near the 1.11245 ratio.
While day traders who remain bullish regarding the EUR/USD might be disappointed that support levels late last week were vulnerable, the downward movement in the currency pair is also a reminder that Forex is never a one-way avenue. Hopefully, traders were not faced with painful losses as the EUR/USD reversed, and understand the Forex pair was likely perceived as overbought in the short-term like many other major currencies paired against the USD.
EUR/USD Remains within Higher Elements of Long-Term Price Range
The fast selling of the EUR/USD mirrored the broad Forex market, but the currency pair remains rather healthy and within the higher elements of its mid and long-term price ranges. Economic conditions are complex in the European Union where inflation and recessionary pressures are evident via data. The European Central Bank will issue its interest rate decision this coming Thursday, following Wednesday’s U.S Federal Reserve policy statement. Both the ECB and Fed are expected to raise their lending rates by 0.25% this week.
Day traders need to understand the likely interest rate hikes to come have been digested into the marketplace for the EUR/USD. What financial institutions and speculators now want to know is the outlooks of the ECB and Fed. On the surface in consideration of current economic conditions in Europe it appears the European Central Bank will have to remain more aggressive than the U.S Fed over the next six months. This perception could continue to lead to incremental buying of the EUR/USD over the mid-term. However, day traders need to take into consideration the daily gyrations which happen in Forex and understand the danger of reversals, like the selling which took place last week after a high was attained in the EUR/USD.
E.U PMI Data Tomorrow Might Create Volatility in the EUR/USD
- Purchasing Managers Index readings will come from Germany and France tomorrow; the outcomes could affect the EUR/USD.
- Traders should pay attention to the U.S Federal Reserve’s FOMC Statement this coming Wednesday. A more dovish-sounding U.S. Fed could spark buying in the EUR/USD.
EUR/USD Weekly Outlook:
The speculative price range for EUR/USD is 1.10975 to 1.13100
Traders should be very cautious early this week taking into consideration that the Fed and ECB will conduct their interest rate pronouncements on Wednesday and Thursday. The highs attained early last week show there remains a belief the EUR/USD has room to move higher, but the fast sell-off also shows that volatility exists as financial institutions aim for a balanced price. The EUR/USD near 1.11000 should be watched early this week to see if the support level can be sustained.
Tomorrow’s PMI readings from the E.U. may be a solid barometer regarding the direction of the EUR/USD. Day traders should understand most financial houses have priced in the interest rate hikes from the Fed and ECB that are likely to come. What large traders are nervous about is the rhetoric of the two central banks regarding their respective outlooks. The EUR/USD has incrementally climbed higher since early June. If current support levels hold, traders may start wagering on higher prices to develop.
Buying the EUR/USD is speculative, but the consideration may prove worthwhile for trading wagers. However, taking positions early this week need to have a full army of risk management prepared. If tomorrow’s PMI numbers from Germany are weaker than anticipated this could spur on momentary market volatility, but after this traders will likely start to position for Wednesday’s FOMC Statement which is sure to cause plenty of market action for the EUR/USD.
