EUR/USD dropped sharply lower on Wednesday and is under continued pressure in early trading today, on the verge of breaking to a multi-year low.
A sharp rise in the dollar on Wednesday led to a decline in EUR/USD and the pair is seen near an important support level.
Horizontal support in EUR/USD at 1.0930 has held the pair higher twice in September, each test leading to a rally towards the 1.10 area. If the pair were to break below support, it would effectively trade at a fresh 28-month low.
Trump’s impeachment inquiry has not hindered the dollar rally and the markets don’t appear to be concerned in general. The S&P 500 declined less than a percent yesterday and has erased most of those losses in pre-market trading today.
The latest GDP figures will be released from the US later today. Analysts are expecting 2% growth in the second quarter. There will also be a speech from ECB President Mario Draghi which could cause volatility if monetary policy or the economy is discussed.
EUR/USD looks like it will break to fresh multi-year lows at this stage but I think the more important questions is if it will continue lower.
The pair has been ranging for most of the month, and on the shorter time frames, it is starting to look a bit oversold.
For most of the year, the exchange rate has been alternating between edging lower and falling into a range. For this reason, I am a bit skeptical that we will see a full out breakdown at this stage.
If the pair were to bounce at in the session ahead, Sellers might look to defend 1.0966. This level was the lowest daily close in the first half of the month.
Where the pair trades relative to the 1.0930 level early in North American trading today will also be important. I suspect that if the pair stays above it, we could see a bit of a bounce.
On the other hand, it is likely stops have accumulated below 1.0930 from traders anticipating a potential double bottom pattern in the pair. In this context, it seems likely EUR/USD will dip below the level to trigger these stops.
Jignesh has 8 years of expirience in the markets, he provides his analysis as well as trade suggestions to money managers and often consults banks and veteran traders on his view of the market.