EURUSD Technical Analysis – “Sell on Rallies” Mode

WE:

• The Fed raised rates by 25 basis points as expected and left everything unchanged at the last meeting.
• Fed Chairman Powell reaffirmed their reliance on data and kept all options on the table.
• Last week’s US CPI came in line with expectations, so market prices remained about the same.
• The job market has shown signs of slowing, although it remains relatively strong.
• Other important economic data like the ISM Services PMI, jobless claims and retail sales have all recently exceeded expectations.
• Fed members are leaning towards a pause in September and the next decision will always be dictated by economic data.
• The market does not expect the Fed to raise rates at the September meeting, but there is now a 50/50 chance of a hike in November.

EU:

• The ECB raised its monetary policy by 25 basis points at its last meeting and added a line in its statement hinting at the end of the tightening cycle.
• President Lagarde did not reject the idea that they had already reached the terminal rate and highlighted the slowdown in the eurozone economy.
• Inflation measures have eased a bit recently, but remain uncomfortably high.
• The labor market remains very tight, with the unemployment rate hovering at historically low levels.
• Overall, economic data has recently shown signs of rapid deterioration in the economy, pointing to a possible recession in the near future.
• The market no longer expects the ECB to raise rates.

EURUSD Technical Analysis – Daily Timeline

On the daily chart we can see that EURUSD sold off following the ECB’s policy decision, with the central bank essentially indicating that it was already done. The pair bounced off a previous low at 1.0635 and moved back into the blue 8 moving average as the price was a bit oversold. EURUSD is in a clear downtrend as price continues to print lower lows and lower highs and moving averages are crossed lower. Rallies will likely only provide good opportunities for sellers to sell at even better prices. Such a good level could be the confluence of the downtrend line and the red 21 moving average around the 1.0750 level.

EURUSD Technical Analysis – 4 hour time frame

On the 4-hour chart we can see that we had a divergence with the MACD just as price was testing the swing low level of 1.0635. This is usually a sign of weakening momentum, often followed by pullbacks or reversals. The first selling zone for sellers is resistance around the 1.0690 level where we can find another minor downtrend line, previous support turned resistance, the 50% Fibonacci retracement level and the moving average red 21. If price breaks above the trendline, we can expect a rally to the 1.0750 price zone where sellers will accumulate around the 38.2% Fibonacci retracement level of the entire decline from the 1.09 handle, the major downtrend line and the daily movement of the red 21. average.

EURUSD Technical Analysis – 1 Hour Timeframe

On the hourly chart, we can see that this pullback towards resistance could turn into a bear flag pattern. In fact, if price breaks below the counter-trend line, we should see more sellers piling in and increasing the bearish momentum, ultimately leading to a break below the low level of 1.0635. The sellers’ objective remains the 1.05 level. Buyers, on the other hand, are likely to rally at each bullish breakout, but they will need the price to cross the main trendline and the 1.08 handle to change the overall trend.

Events to come

This week contains only a few important economic releases, with tomorrow’s FOMC rate decision being the highlight. The Fed is expected to keep rates unchanged and the market will focus more on the Dot Plot and Fed Chairman Powell’s press conference, although he is likely to reiterate that they remain data dependent. Moving on to Thursday, we’ll see another report on US jobless claims, while on Friday we wrap up the week with Eurozone and US PMI data.