Anticipated EUR/USD Weakness Puts 1.0871 on Radar

The Euro is expected to open sharply lower against the U.S. Dollar on worries about risks for Europe’s economy. The escalating Ukraine conflict and increased Western sanctions are sending tremors through the world economy and casting a pall over the financial markets.

Over the weekend, the U.S. and its allies imposed stricter penalties on Russia to prevent its central bank from using foreign reserves to undermine sanctions. They also excluded some Russian lenders from the SWIFT messaging system that underpins trillions of dollars’ worth of transactions.

On Friday, the EUR/USD settled at 1.1272, up 0.0079 or +0.71%. The Invesco CurrencyShares Euro Trust ETF (FXE) settled at $104.58, up $0.60 or +0.58%.

Daily Swing Chart Technical Analysis

The main trend is down according to the daily swing chart. A trade through 1.1107 will signal a resumption of the downtrend. A move through 1.1389 will change the main trend to up.

Short-Term Outlook

Based on the early calls, the EUR/USD is expected to open sharply lower with the May 25, 2020 main bottom at 1.0871 the next major downside target.

We could see a technical bounce on the first test of 1.0871, but if it fails then look for the selling to possibly intensify. This could create the downside momentum needed to challenge the March 23, 2020 main bottom at 1.0636. This is also known as the Coronavirus Bottom.

The direction of the EUR/USD late in the session could be determined by trader reaction to 1.1272. If there is a massive technical bounce and rebound, speculators may try to attack this level in an effort to form a technical closing price reversal bottom.

Side Notes

Traders are expected to liquidate long positions early in the session as they assess the impact of the decision to restrict Russia from the SWIFT system. It may take hours or days to realize the full impact of the news so traders should expect several days of heightened volatility.

Additionally, some traders are looking for Russia to start a cyber-attack on European, Asian and U.S. financial institutions in an effort to disrupt the global financial systems.