The EUR/USD currency pair broke down strongly last Friday and is continuing to move lower as the new week gets underway.
The narrow ranging pattern that has dominated here for the past couple of weeks seems to have decisively changed. Two major developments that market participants will be keeping an eye on are likely in the driver’s seat:
Surprisingly strong US jobs data, which has caused major financial institutions to push back their forecasts on rate cuts by the Fed as not likely to happen before 2027.
The deterioration of the situation in the Middle East, with Iran’s ballistic missile attack on Israel last night signalling a resumption of the war between Iran and Israel, although the USA is still refraining from aggressive actions and President Trump is still talking up the prospect of a deal.
Clearly, the resumption of kinetic war involving Iran is a dramatic development that cannot help but impact markets, both in terms of crude oil price-driven inflationary pressures and in terms of risk appetite and flow into safe havens. Markets had been focused on the prospect of a deal between the USA and Iran which was helping to boost stock markets. President Trump’s deal rhetoric is ringing increasingly hollow anyway, and this fighting will only make it sound even more so. While Trump will try to keep the USA out of this, Iran is already attempting to use it as leverage against the USA, accusing the USA of being fully involved. The USA has admitted Israel is reading in CENTCOM regarding its operations, and the USA is also helping Israel to shoot down Iranian ballistic missiles.
It looks like we are going to see more risk off sentiment in the market this week, which suggests a strong US Dollar.
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EUR/USD Technical Analysis
The story of this currency pair today is a pair which is finally making a strong bearish breakdown. On Friday it made a strong downwards move which finally took it out of the medium-term range which it had been trading in, and so far early trading today (Monday) has sent it even lower – at the time of writing, it is testing the round number and support confluence at $1.1500, which is a 2-month low price.
The supportive area which starts at $1.1500 is important and looks quite likely to hold or at least to put up strong resistance to a further fall. This is partly because $1.1500 is a big round number, but more so because there is a cluster here of three support levels close by. Such clusters tend to be notably stronger than one individual level.
The price is quite far from the nearest resistance level, and will probably be caught between bearish factors pushing the price down and strong bids below $1.1500.
My Take on EUR/USD
The thing to watch here today is whether the price manages to break below the supportive area between $1.1500 and $1.1485. This is likely to be the pivotal zone today, although I do not think we will see a major bullish reversal.
This means that a long trade from a bounce at $1.1500 or either of the horizontal support level below will be best executed as a scalp, with fast and conservative profit taking. I think if the support holds, we will probably be in for a period of consolidation above $1.1500 next.
Alternatively, if the price can get established below $1.1485 today, that will be a very bearish sign and swing traders might want to try to get short below that level, when there is short-term bearish momentum and no significant lower wicks to worry about.
Review, Support & Resistance Levels
In my previous EUR/USD analysis on 3rd June, I thought that the EUR/USD currency pair was likely to reach the support at $1.1587, which it did not that day.
Risk 0.75%.
Trades may only be taken prior to 5pm London time.
Short Trade Idea
Go short following a bearish price action reversal on the H1 timeframe immediately upon the next touch of $1.1596.
Place the stop loss 1 pip above the local swing high.
Move the stop loss to break even once the trade is 20 pips in profit.
Take off 50% of the position as profit when the price reaches 20 pips in profit and leave the remainder of the position to run.
Long Trade Ideas
Long entry following a bullish price action reversal on the H1 timeframe immediately upon the next touch of $1.1500, $1.1492, or $1.1485.
Place the stop loss 1 pip below the local swing low.
Move the stop loss to break even once the trade is 20 pips in profit.
Remove 50% of the position as profit when the price reaches 20 pips in profit and leave the remainder of the position to run.
The best method to identify a classic “price action reversal” is for an hourly candle to close, such as a pin bar, a doji, an outside or even just an engulfing candle with a higher close. You can exploit these levels or zones by watching the price action that occurs at the given levels.
There is nothing of high importance scheduled today concerning either the Euro or the US Dollar today.
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