Why EUR/USD’s near-term bias could flip bearish below 1.0640

While both the ECB and the Fed will be raising interest rates in the latter half of the year, recent headlines suggest that the case for continued growth in the US economy is stronger than in Europe

Downtrend 5

Last week, we noted that that the world’s most widely-traded currency pair was rising within a near-term bullish channel and looking to retest key resistance in the 1.0770 area. As the updated chart below shows, EUR/USD did indeed retest that area, but bulls were unable to muster enough strength to push the pair above it.


Source: StoneX, TradingView

Now, EUR/USD has definitively broken down from that channel and is within about 20 pips of previous-resistance-turned-support in the 1.0640 zone. The idea that former resistance levels, or ceilings on price, can turn into future support levels, or floors under price, once they’re broken (and vice versa) is called the polarity principle, and in this case it suggests that a break back below the 1.0640 level would shift the near-term bias to bearish for a move back down toward 1.0500. Indeed, the pair’s 4-hour RSI indicator has already dropped to its lowest level in more than two weeks, signaling that buying pressure is rapidly dissipating.

From a fundamental perspective, the immediate catalyst for today’s selloff in EUR/USD is better-than-expected economic data out of the US, where both this morning’s ISM Manufacturing PMI report and the JOLTS job openings report came in strong. Meanwhile, the European Union’s decision to ban most Russian oil imports by the end of the year, while principled, may have the short-term effect of slowing economic growth and further entrenching inflation.

In other words, while both the ECB and the Fed will be raising interest rates in the latter half of the year, recent headlines suggest that the case for continued growth in the US economy is stronger than in Europe, and that could keep the greenback on the front foot in the coming days.

Disclaimer: The information on this web site is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement. The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.

Futures, Options on Futures, Foreign Exchange and other leveraged products involves significant risk of loss and is not suitable for all investors. Losses can exceed your deposits. Increasing leverage increases risk. Spot Gold and Silver contracts are not subject to regulation under the U.S. Commodity Exchange Act. Contracts for Difference (CFDs) are not available for US residents. Before deciding to trade forex and commodity futures, you should carefully consider your financial objectives, level of experience and risk appetite. Any opinions, news, research, analyses, prices or other information contained herein is intended as general information about the subject matter covered and is provided with the understanding that we do not provide any investment, legal, or tax advice. You should consult with appropriate counsel or other advisors on all investment, legal, or tax matters. References to Forex.com or GAIN Capital refer to GAIN Capital Holdings Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.

Open an Account