Forex Chronicles: EURUSD Rate Dynamics

The EURUSD currency pair holds a special place in the world of trading. It reflects the value relationship between the Euro and the US dollar, serving as a barometer of the international economic climate, since both the Eurozone and the US boast leading world reserve currencies. Therefore, the EURUSD’s speculative potential is huge.

Since the inception of the Euro in 1999, EURUSD has become deeply ingrained in the interbank realm, actively reflecting the sentiments and economic conditions prevailing among the European Union’s member states. Over the past two decades, this currency pair has experienced significant fluctuations, primarily driven by various economic and geopolitical events, as well as strategic decisions of central banks.

It’s worth noting the close connection between EURUSD and the US dollar index (DXY). While they exhibit a near-perfect negative correlation (which means that typically they move inversely to each other), they remain inseparable when it comes to analysis. 

Lately, EURUSD has been making a gradual attempt at recovery after its ninth consecutive week of losses — the lengthiest losing streak in the history of the euro. The euro kept declining until it reached 1.0450. This occurred against the backdrop of the Fed’s statements about tightening the monetary policy. As a result, the dollar gained strength, its index edged higher, and the currency pair declined. The fall can also be attributed to the ECB’s decision regarding the interest rates — concerns about a slowdown in economic growth, which outweighed worries about inflation, proved to be valid.

Typically, during such moments, all the attention is focused on key inflation data, which was published on September 29. Overall, the situation is quite complex. Among the other news from Europe and the United States that could impact the EURUSD rate, was the release of the United States Gross Domestic Product (GDP) data. As the dollar strengthens, we gain more insight into the price’s direction.

Nevertheless, there are positive expectations from a technical analysis perspective. When examining the chart, one can notice that the price is currently near the March lows, hitting a low last seen in early January. The previous support level at 1.0500 has proven itself, and the bulls managed to stage a rebound.

However, the last few days have shown that the bears remain quite strong and have once again pushed the price toward a breakdown of support. Although it’s premature to declare an actual breakout as the price has only revisited the level. Often, major players “artificially” lower the price, allowing the smaller ones to perceive an imaginary opportunity for profit. This is where trading volumes come into play. Major players are interested in protecting their position and accumulate new volumes for a directed movement. In this scenario, they rely on the selling by other market participants, as well as stop-orders from other (less cautious) traders. A reversal can be anticipated once the first sells start to appear. In simple terms, a fake breakout will likely result in rapid price growth.

However, there’s a significant amount of resistance ahead. The first one is at 1.0600, and a bounce has already occurred, aligning well with the context of a descending channel. Yet, 1.0700 presents a more compelling and significant obstacle from a bearish perspective. When this level is tested, there could be a strong bearish reaction to protect their positions and a swift downward move with the possibility of setting new lows.