EUR/USD Needs to Hold 1.0931 to Sustain Downside Momentum

The Euro is trading lower against the U.S. Dollar on Monday after tanking more than 1% lower earlier in the session. The steep loss has put the single-currency in a position to post its worst three-day loss in two years as soaring oil prices stoked fears of a stagflationary shock that could pulverize European recovery hopes.

At 13:01 GMT, the EUR/USD is trading 1.0893, down 0.0037 or -0.34%. On Friday, the Invesco CurrencyShares Euro Trust ETF (FXE) settled at $101.40, down $1.29 or -1.26%.

Despite the early setback, the EUR/USD has clawed back from than half of its earlier losses, which has put it in a position to turn higher for the session.

According to Reuters, the conflict in Ukraine and harsh international sanctions on Moscow have sent Russian assets tumbling, while prices of the country’s exports such as precious metals, oil and gas have soared at a time when the global economy was already grappling with inflationary pressures.

Europe is the most vulnerable as it imports as much as 40% of its natural gas from Russia and the single currency has become increasingly correlated with oil price – the higher oil climbs, the more the Euro falls as investors fret about higher inflation and the blow to the economy, Reuters wrote.

Daily Swing Chart Technical Analysis

The main trend is down according to the daily swing chart. The downtrend was reaffirmed earlier in the session when sellers took out the May 25, 2020 main bottom at 1.0871. A move through the intraday low at 1.0806 will signal a resumption of the downtrend.

The main trend will change to up on a trade through 1.1389. This is highly unlikely, but the EUR/USD is currently down 10 days from its last main top at 1.1389, putting it inside the window of time for a potentially bullish closing price reversal bottom. This won’t change the main trend to up, but if confirmed, it could trigger the start of a 2 to 3 day rebound.

The nearest resistance is a pair of 50% levels at 1.1098 and 1.1151.

Daily Swing Chart Technical Forecast

The direction of the EUR/USD into the close on Monday is likely to be determined by trader reaction to 1.0931.

Bearish Scenario

A sustained move under 1.0931 will indicate the presence of sellers. If this continues to put pressure on the EUR/USD then look for a retest of the intraday low at 1.0806.

Taking out 1.0806 later in the session could trigger an acceleration to the downside with the next major targets the March 23, 2020 main bottom at 1.0636 and the April 10, 2017 main bottom at 1.0569.

Bullish Scenario

A sustained move over 1.0931 will signal the presence of buyers. If this can create enough near-term momentum then look for the rally to possibly extend into the two 50% levels at 1.1098 and 1.1151.

Side Notes

A close over 1.0931 will form a closing price reversal bottom. If confirmed on Tuesday then look for a possible 2 – 3 day rally into 1.1098 to 1.1151.