GemForex - EUR/USD

An interesting week is unfolding for EURUSD. One of the most traded currencies in the world is presented this week with multiple challenges which have the potential to further reduce its dominance. 

THE ECB hawks are waking up, as there are talks that it will increase rates, not by .25bps as expected, but by a whole .50bps, in a race against time, inflation, and other factors which already shape the EURUSD short-term trajectory. 

In short, the ECB Chief, Christine Lagarde, promised gradual tightening at the latest ECB meeting, showing a shift to a hawkish tone and that suggests that the upside risks are building for the Euro. 

Today, Mario Draghi is expected to announce his resignation once more, failing in the meantime to rally his coalition partners in the government, and therefore leaving the current government unable to pass even the simplest policies. The Euro didnt react well to this news, and the Italian Bond yields spiked even further, widening even further between Germany and other European nations, erasing all the goodwill market movements which happened last week when Draghi was refused to resign by the Italian president Mattarella. 

Nevertheless, today will be an interesting day for the Euro, as all eyes are on the ECB, which has many leashes on its hands to manage, proving that way that the Eurozone is too fragile and with many players to take care of amid the galloping inflation, the sanctions against Russia and its crucial components for the European manufacturing industry, signaling that the Eurozones terms of trade are expected to deteriorate further, which will likely weaken the Euro further too. 

According to market participants, these are already major signs of recession in Europe, something unprecedented during the summer months. These are all factors that are exposing the ECB and the Euro as a fragile and weak currency for the next year, as the ECB cannot hike its rates and refrains from ending Quantitative Easing earlier, stressing nations that already pay more for imports and less for exports.

On a similar tone, the technical outlook for the Euro looks mixed. The EURUSD looks corrective with key topside areas yet to be breached, and the market seems already priced into the imminent rate hike since the Euro is on an uptrend since yesterday night. 

As mentioned in our previous market outlook, the current price levels to watch out for are unchanged. If the bears take hold, the EUR is expected to weaken further below 1.02, and if breached, the next level to look out towards 1.01 is the 1.01565 level, which functioned as a support and a resistance during the past few days. Further support levels are around 1.0 (parity level) and 0.9952 (yearly low). 

If the market unfolds in the favor of the bulls, the next resistance to look at is the 1.0340-50 level (2017-2022 lows) and the next level at 1.0485-90 (July 1st highs).

To me, the Euro remains in a downtrend, although the outlook will be much clearer after we have clarity on energy flows and Italian politics. Stressing uncertainty and flexibility also signals reluctance ahead of emerging factors, something which will unfold in front of our eyes in the next few months.