EUR/USD Overall Bearish… (Trade of the Day)

These two currencies are currently divergent in their current macroeconomics characteristics – a plausible play for bearishness. The Euro area is already significantly slowing, the US, however, hasn’t shown any significant indication of slow growth setting the Euro up for weakness and the USD for further strength respectively. However, the momentum of the envisaged downside move in the EURUSD would be largely dependent on USD valuation as weakness in Euro has been materially priced in since the beginning if-then year.

Technically, we are in a complex combination of a range, two downtrend channels differentiated by their spatial orientation [see H4 chart], thus highlighting the recent months’ choppiness in the EUR/USD; an indication that caution needs to applied in trade entries and employment of effective risk management practices. Price is currently bouncing off a near-term resistance zone, should this continue to hold, we would want price to break below a near-term support area at the 1.11760 area as it is at the confluence with a plethora of 50% Fibonacci levels [see H4 chart].

Fig 1: 4-Hour (H4) EUR/USD Chart

EUR/USD Sell order @ 1.11635 (pending order) Stop: 1.12540 Limit: 1.10550

Alternatively, as we mentioned above, this is more of a USD play. If for any reason the Fed comes off overtly dovish ahead of the September FOMC interest decision – bond market currently pricing another 25bp cut or a 50 bp cut – possibly highlighting the beginning of a rate-cutting cycle that would most likely incorporate a fresh bout of bearishness in the USD nullifying the aforementioned outlook. Also, from a technical standpoint if price responds also to the other downtrend channel (highlighted with navy lines) [see Fig. 1] then the expectation would be that price continues its retracement to the upper bound of this channel,  hence we advise that traders always employ a stop-loss.

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