Is Further Downward Movement Expected in EUR/USD?

11 Kas

The EUR/USD pair has recently broken a significant uptrend line and fallen below a crucial horizontal support level on the daily chart. This initial downward movement was triggered by Donald Trump's victory in the US presidential election. His consistent emphasis on prioritising the local economy has led the market to anticipate protective policies aimed at reducing imports, thereby strengthening the Dollar against the Euro.

From a technical perspective, current price action suggests increasing selling pressure, with the pair now approaching a critical support level at 1.0678. Below, we explore two potential scenarios for EUR/USD.

Scenario 1: Retracement to the 1.0780 Region Followed by a Subsequent Decline

Following the break of the uptrend line, the price may experience a pullback to retest the 1.0780 region, which is likely to act as resistance.
This 1.0780 level coincides with a confluence zone formed by the prior trendline and the previously broken horizontal support level, making it a significant area of interest for sellers.

Possible Sell Entry:
If the price exhibits signs of rejection upon reaching 1.0780, this could present an attractive selling opportunity, with initial targets set at the 1.0678 support level and subsequently at the 1.0470 region, as indicated on the chart.

Stop Loss: A protective stop loss could be placed slightly above 1.0830 to safeguard against a false breakout.

Scenario 2: Break Below the 1.0678 Support Level

The 1.0678 support level has been tested multiple times in recent sessions, rendering it a crucial point. A breach below this level would signify a potential continuation of the downward movement over the next few days.
A daily close below 1.0678 could amplify the likelihood of a steeper decline, setting the stage for the next support level around 1.0470.

Possible Short Entry:
If the price breaks below 1.0678, a short entry could be initiated with initial targets at 1.0610, and a final target positioned at the strong support level of 1.0470, which has been significant since October 2023.

Stop Loss: For this scenario, a stop loss could be positioned slightly above 1.0700 to avoid being affected by a false retest of the broken support.

Donald Trump's victory has instigated a downward shift in the Euro's value against the Dollar, and this trend is likely to continue in the coming days. Given that EUR/USD is currently at a critical juncture, both outlined scenarios present viable trading opportunities, contingent upon price action in the forthcoming sessions. Careful monitoring of the 1.0678 and 1.0780 levels will be essential for determining the pair’s future direction and validating potential entry points.

Disclaimer:
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