EUR Gets a Brief Respite before the Global Central Banking Conference, but Hard to Change the Weakness

Summary:

The European energy crisis has made the market raise the bets on the European Central Bank (ECB) to raise interest rates sharply, which may trigger market concerns about the European economic recession. In addition, the ECB may not be able to save the EUR's decline even if it raises interest rates sharply.

SELL EURUSD

Close Time

CLOSED

1.00098

Entry Price

0.99107

1.00700

1.15727 -0.00056 -0.05%

60.2

Pips

Loss

0.99107

1.00701

Exit Price

1.00098

Entry Price

1.00700

Fundamentals

The EUR edged down 0.05% yesterday, hitting an intraday high of 1.000 again before pulling back from that high. At present, the EUR has risen by more than 40 points in the short term, and as the global central banking conference in Jackson Hole is approaching, some traders believe that Powell's speech may not be considered hawkish enough by the market, and adjust their positions in advance to leave, triggering a pullback in the USD.

Although the EUR appreciated in the short term, the overall trend is still weak. North Stream 1 is about to suspend the gas supply and the U.S. Freeport LNG will delay the resumption of exports, making Europe face a worse energy crisis. Additionally, as soaring natural gas prices spark inflation, markets have ramped up bets that the ECB will take bolder action to curb the surge. Currently, the eurozone is struggling with record energy prices, and it is exacerbated by the Russian-Ukrainian conflict. Moreover, money markets are now fully pricing in a 100-basis-point rate cut by the ECB at the October meeting, which will raise the deposit rate to 1%, based on swap rates tied to the date of the meeting's decision. This is the first time the market priced in a rate hike of this magnitude.

That also means the eurozone could face a deeper-than-expected recession around the end of the year.

Furthermore, the EUR is hovering below parity again after the recent slump, and even a sharp rate hike by the ECB will not save the decline. It's not monetary policy but interconnected crises such as the recession and the sharp reduction in Russian energy supplies that are weighing on the EUR. For the ECB, despite the special tools adopted to reduce costs of debt, none of these can address the crisis above. Moreover, because interest rates have not been the dominant factor driving the current market, especially over the past month, the key issue is sluggish global growth. When big rate hikes are aimed at stabilizing inflation expectations while hurting growth prospects, the currency will not be supported.

Technical Analysis

Regarding the 4-hour chart, the EUR fluctuated within a narrow range of 1.00172--0.99107 in the past two trading days. With the global central banking conference in Jackson Hole approaching, the market is gradually cautious, and the EUR may continue to oscillate in this range. Besides, the key support below is the 38.2% Fibonacci retracements (0.98283), a new round of decline will start if it falls below this support. Also, the EUR can only reopen the upper space if it breaks 1.03497. For indicators, Stoch has entered the overbought zone, waiting for the formation of a dead cross. In DMI, ADX rose slightly, -DI was down and showed a downward trend. It is currently located at 11.2, indicating that the downward momentum of the EUR has weakened, and the short-term rally of the EUR has not yet ended. It is recommended to go short at highs after the appreciation.

EURUSD: EUR Gets a Brief Respite before the Global Central Banking Conference, but Hard to Change the Weakness_1

Trading Recommendations

Trading direction: Short

Entry price: 1.00172

Target price: 0.99107

Stop loss: 1.00700

Support: 1.0000/0.99521/0.99107

Resistance: 1.00172/1.00410/1.00769

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