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CFDs are complex financial instruments and come with a high risk of losing money rapidly due to leverage. You should consider whether you understand how CFDs work, and whether you can afford to take the high risk of losing your money. CFDs are complex financial instruments and come with a high risk of losing money rapidly due to leverage. You should consider whether you understand how CFDs work, and whether you can afford to take the high risk of losing your money.

Euro outlook remains murky as gas prices soar and Fed hike looms

EUR/USD has made a 20-year low as inflation and energy woes impact; US dollar has interest rate tailwinds ahead of the Federal Reserve meeting and technical signals might provide directional clues. Will EUR/USD make a new low?

Source: Bloomberg

Euro backdrop

The euro remains vulnerable, particularly against a strengthening US dollar due largely to the war in Ukraine. The Russian supply of oil to Europe is severely compromised, and natural gas prices have responded by sky rocketing.

The benchmark Dutch Title Transfer Facility (TTF) natural gas futures contract has taken flight. The contract is 250% higher than the June low. More indicative of the developing crisis is that the price has gone from under 4 Euro per Mega Watt hour (MWh) in 2020, to over 292 MWh today.

The interest rate differential between the European Union and the US also creates headwinds for EUR/USD. The Federal Reserve Jackson Hole symposium, that starts on Thursday, might deliver further guidance on the path of future hikes from the Fed.

Meanwhile, the European Central Bank (ECB) are expected to lift rates at their September meeting to battle alarming inflation at a time when economic conditions are deteriorating. Eurozone CPI will be released next Wednesday.

EUR/USD technical analysis

On Tuesday, EUR/USD traded down to 0.9900, its lowest level since December 2002.

The move went below the lower band of the 21-day simple moving average (SMA) based Bollinger Band. At the close of trade yesterday, it closed back inside the band. This could be a near term signal that a reversal in the downtrend may unfold.

Overall, the descending trend channel remains in place. In May and June made lows of 1.0349 and 1.0359 respectively. Both times, the price bounced off the January 2017 low of 1.0340. These three levels were broken on the initial run down to 0.9952 in mid-July.

Those three levels that were broken became break point resistance levels. The run up in price tested these levels to make a high two-weeks ago at 1.0369. This has now set up a potential cluster resistance zone at 1.0340 – 1.0370.

Since we have moved below that July low this week, the 1.618% Fibonacci extension at 0.9696 might provide support. That level currently coincides with the lower bound of the descending trend channel.

Source: TradingView

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This information has been prepared by IG, a trading name of IG Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients.
CFDs are a leveraged products. CFD trading may not be suitable for everyone and can result in losses that exceed your initial deposit, so please ensure that you fully understand the risks involved.

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