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Euro Forecast: Further EUR/USD Weakness in Store

Euro Forecast: Further EUR/USD Weakness in Store

Martin Essex, MSTA,

Chart created with TradingView

Euro price, news and analysis:

  • The dramatic if unsurprising drop in EUR/USD below 1.17 last Thursday will likely lead to further substantial losses for the Euro against the US Dollar, although a pause for breath around current levels seems likely first.
  • With the pair having already made new 2021 lows, the lows around 1.16 last seen in September and then again in November 2020 are the obvious next targets for the bears.

Euro price at risk of steeper correction lower

Last Thursday’s sharp decline in EUR/USD below 1.17 came as no surprise but was still highly significant and has set the stage for further weakness, with a decline to around 1.16 highly likely. However, some consolidation above as well as below 1.17 is likely first, and even a sizeable bounce would leave risk skewed to the downside.

Although technically EUR/USD is not yet significantly oversold, the pair’s fall to new 2021 lows is bound to lead to a period of contemplation before the next steep move but the bears will already be looking to the September 2020 lows just above 1.16 and the November 2020 low at 1.1602 as the obvious next targets.

EUR/USD Price Chart, Daily Timeframe (August 27, 2020 – August 19, 2021)


Source: IG (You can click on it for a larger image)

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The principal problem with this analysis is that bearish sentiment towards EUR/USD is now so widespread that any positive news for the Euro – or negative news for the Dollar – could lead to some quite substantial short covering, giving the pair at least a temporary lift.

It is in that context that the Kansas City Fed’s economic policy symposium in Jackson Hole, Wyoming, that begins on Thursday this week and ends on Saturday, is so important. Market participants are so convinced that the Federal Reserve will effectively pre-announce a reduction in its monetary largesse that there is plenty of room for disappointment.

The Fed could, for example, decide to say nothing until the September 21-22 meeting of the Federal Open Market Committee, which will include a summary of its economic projections. Likely? No. Possible? Yes.

Week ahead: PMIs and Ifo

Turning to the coming week’s data, there are plenty of figures that would normally be important but will be less so because of the shadow cast by the Jackson Hole Symposium. There are purchasing managers’ indexes for both the manufacturing and services sectors of the Eurozone economies Monday, followed by the Ifo index of Germany’s business climate Wednesday, the GfK measure of German consumer confidence Thursday and French consumer confidence Friday.

Like to know more about EUR/USD and why to trade it? Check out this article here

--- Written by Martin Essex, Analyst

Feel free to contact me on Twitter @MartinSEssex

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.