Here Comes EUR Weakness as It Falls Back after a Rise

Summary:

Ukraine has cut off Russia's natural gas pipeline to Europe, making the situation worse for the already energy-starved Europe. If this problem cannot be solved, there will be a series of knock-on bearish reactions against the EUR.

SELL EURUSD

EXP

EXPIRED

1.04231

Entry Price

1.03727

1.04655

1.16514 +0.00088 +0.08%

Pips

EXPIRED

1.03727

1.05502

Exit Price

1.04231

Entry Price

1.04655

Fundamentals

After last Thursday's sharp fall, the EUR fluctuated upward on Friday, rising 0.31% to 1.0411, with signs of a pullback, which is driven by a small drop in the USD. At present, the eurozone is facing a series of problems such as deteriorating terms of trade, economic slowdown, high inflation, etc. In addition to the increasingly serious monetary polarization with the Federal Reserve, the overall performance of the EUR is weak.

In addition, on May 11, Ukraine's natural gas transportation service company suddenly cut off a large gas transmission hub from Russia to Europe, which transported almost one-third of Russia's natural gas to Europe. This will make the situation worse for the already energy-starved Europe. Russia has been occupying land in Luhansk recently, but even the occupation of pipeline facilities will not affect the overall security, because the pipeline was originally jointly built by Russia and Ukraine. There is no technical communication barrier between the two countries, and Russia will not cut off the buyer's backup plans. Therefore, some analysts believe that this operation by Ukraine is "holding" western countries hostage, putting pressure on Russia to help Ukraine in its demand of "restarting after recovering its territory".

This move by Ukraine will undoubtedly lead to a further increase in energy prices in Europe. At the same time, due to the strong negative correlation between the terms of trade and energy prices, this will further worsen the terms of trade, which will have a negative income effect on the eurozone. In other words, if this problem cannot be solved, the EUR will fall further.

Technical Analysis

In the 1W timeframe, the EUR has fallen below the downward path to open a new round of decline. During EUR's callback, the focus should be given to 1.0467. The EUR will always be in a downward trend before this line is broken. The lower support was a 17-year low of 1.035.

EURUSD: Here Comes EUR Weakness as It Falls Back after a Rise_1

In the 4H timeframe, the EUR fluctuated within a narrow range of 1.04182-1.03924 in the short term. Special attention should be given to the short-term strong support interval of 1.03640-1.03497. If it falls below this line, it is expected to fall to 1.03206, which is the location of the gold division line 50.0 in the 1998-2000 downtrend. In terms of indicators, Stoch showed a significant downward trend; In the DMI, although -DI is lower and located at 12, +DI is also nearby, indicating that the EUR's increase is limited; The same is true for the Ichimoku chart.

Trading Recommendations

Trading direction: Short

Entry price: 1.0435

Target price: 1.03727

Stop loss: 1.04655

Support: 1.04182, 1.03924, 1.03640

Resistance: 1.04353, 1.04700, 1.0500

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