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New Lows in Sight amid Poor Risk, Fed

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  • The Euro remains hostage to wild volatility amid risk-off sentiment.
  • Can the ECB’s monetary policy meeting have a positive impact?
  • EUR/USD has the potential to slide off in search of a new bottom.

The EUR/USD outlook remains mixed as the pair partially recovered the losses on Thursday. However, the risk sentiment caps the gains. 

The Euro spent the Asian session since the market opened, recovering full losses on Wednesday against the US dollar as equity markets seemed to have understood the consequences of higher rates. Looking ahead, the focus will be on the central bankers’ comments. In particular, ECB members will be closely watched, as rate hikes are likely to be discussed.

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Now that we turn to the US Dollar, there is a unique dual mandate of market interest. On the one hand, the Greenback is a safe haven, but the market perceives it more as a harbor of extreme fear. If we get an “irregular” perception of financial markets, the US currency benefits. Alternatively, USD is also an opportunist carry trade. With FED officials warning us that they intend to hike as long as financial markets operate and the economy does not collapse into recession, it breaks the perception that there is an imminent “FED hike” on hand.

That proves a serious threat to the risk trend but does not provide a persistent impetus for the greenback. Why? We know the US central bank intends to be aggressive with its policy moving forward and has priced in a bit of tightening. What is not well appreciated is closing the gap from the dovish side. Expectations of an ECB hike in July and the possibility of further strengthening in the second half of the year leaked into expectations. I believe that could eventually push the EUR/USD back above 1.0635, or sooner than expected.

However, market conditions are still waiting and seeing what policies will be decided by the ECB. At least today’s event, namely the ECB Monetary Policy Meeting, which will be held at 1130 GMT, can serve as a lattice of what will happen in the future.

EUR/USD shows lower highs and lower lows, illustrated by descending trend lines above and below the daily timeframe price.

Price movements during the Asian session indicate an attempt to recover Wednesday’s weakness throughout the Asian session to the American session. Despite the rejection in the pivot area today at 1.0496.

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Support could be at the recent low at 1.0349 or the January 2017 low at 1.0340. On the upside, resistance could be at the recent high at 1.0638 or a break at 1.0758.

With all short, medium and long term Simple Moving Averages (SMAs) showing negative gradients, bearish momentum may still play a role. The opportunity to find a new bottom is still very possible.

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