EUR/USD: Watch out below if 20-month lows at 1.1125 give way!

The ongoing military clash in Ukraine may soon drive EUR/USD to its lowest levels in more than 20 months

EU (1)

The escalating conflict in Ukraine has had a predictable impact on the world’s most widely-traded currency pair: When Russia’s invasion began in earnest on Wednesday evening, EUR/USD dumped more than 200 pips in about 24 hours as traders priced in greater risk for the nearby Eurozone and fled to the safety of the world’s reserve currency.

While the pair has stabilized above that key support level over the last couple of trading days, the ongoing military clash may soon drive EUR/USD to its lowest levels in more than 20 months. Recent headlines that Russia is escalating nuclear preparations and that the west is imposing increasingly tough sanctions, including freezing assets and cutting off certain Russian entities from the SWIFT interbank communications network, suggest that the risk-off tone may linger throughout the week and potentially beyond.

From a technical perspective, EUR/USD remains (barely) within its 1.1125-1.1500 range from February, but after a shallow bounce heading into the weekend, rates are once again on the verge of breaking lower as we head to press. Indeed, fans of classic technical analysis may even identify February’s price action as an “inverted cup-and-handle” formation, showing growing selling pressure on 1.1125 support and the potential for a quick move down to 1.1000 or lower if that level gives way in the coming days:


Source: TradingView, StoneX

For reference, the 1.1000 level, in addition to being a psychologically-significant round number, was also a repeated area of resistance back in April 2020; as always, previous resistance levels, once broken, have a higher probability of turning into support in the future. To capitalize on this setup, bearish-inclined traders could consider setting a stop sell order near the 1.1100 handle with a stop back above 1.1125 and an initial target near potential support at 1.1000.

Despite the current bearish technical/fundamental backdrop, it’s important to remember that the broader environment remains highly fluid, so it helps to prepare for multiple potential outcomes. In that vein, signs of a ceasefire in Ukraine and/or a bounce above this week’s high near 1.1250 in EUR/USD would erase the near-term bearish bias and suggest that February’s range may hold through at least the first week of March.

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 or GAIN Capital refer to GAIN Capital Holdings Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.

Open an Account