EUR/USD Pressured by Threat of Fed Rate Hike, Brexit Concerns

The Euro finished lower last week against the U.S. Dollar after the European Central Bank left its benchmark refinancing rate at 0 percent and its interest rate on deposit facility remained at -0.40 percent. Additionally, the U.S. Dollar gained on the Euro as upbeat U.S. economic data drove up the chances of a Federal Reserve Rate hike before its December meeting.

In his post-meeting press conference, ECB President noted that he did not want to underplay the challenges facing the Euro Zone, including high levels of bad loans in the banking sector and geopolitical instability related to terrorism and the Brexit vote.

The chances for a Fed rate hike rose from 20 percent three weeks ago to 60 percent this week as U.S. housing starts showed a surprising improvement. This comes on the heels of solid U.S. Non-Farm Payrolls data and Retail Sales for June.

Technically, the main trend is down according to the weekly swing chart. The trend isn’t close to changing to up at current price levels. A trade through 1.0910 will signal a resumption of the downtrend.

The main range is 1.1712 to 1.0539. Its 50% level or pivot is 1.1125. The close below this price has helped maintain the downside bias. Also supporting the downside bias is the close under the downtrending angle at 1.1136.

Based on the close at 1.0975, the first downside target this week is the post-Brexit low at 1.0910. This is followed by a long-term uptrending angle at 1.0869 and a bottom from the week-ending March 11 at 1.0821.

A sustained move under the angle at 1.0869 will be another sign of increased selling pressure. This could lead to an eventual test of the next uptrending angle at 1.0704 this week. This is the last potential support angle before the 1.0539 main bottom.

Look for the downside momentum to continue as long as the EUR/USD remains under 1.1125 to 1.1136. Watch for a possible acceleration to the downside to begin on a sustained move under 1.0869.