The EURUSD pair is experiencing a downward trend, reaching new session lows. It is testing a key support zone between 1.1614 and 1.1631, defined by previous swing levels.<\/p>\n
Earlier, a short-lived rally stalled around 1.1769, close to the 1.1787 resistance linked to earlier highs in July. The momentum increased after breaking past the 50% midpoint of July’s range at 1.1693 and the 200-hour moving average at 1.1687, reinforcing the bearish outlook.<\/p>\n
The current key support area between 1.1614 and 1.1631 might entice buyers, yet the overall trend remains downward with minimal bullish indications. Intraday traders should monitor the 1.1664 level, the early US session corrective high, as the initial resistance point.<\/p>\n
Surpassing this with a hold could be a minor gain for short-term buyers. However, a greater challenge lies at the 100-bar moving average at 1.1675, which marks stronger resistance. For buyers to regain control, prices must rise above these resistance levels; failure to do so keeps the downward trend towards 1.1614 at risk of being breached.<\/p>\n
Given the sustained downward pressure on the EURUSD, we believe derivative traders should favor bearish strategies in the coming weeks. The pair’s failure to hold onto gains shows that sellers remain in firm control of the trend. This environment makes holding long positions, such as buying simple call options, a comparatively risky proposition.<\/p>\n
The fundamental driver for this move is the widening policy gap between the US Federal Reserve and the European Central Bank. The Fed has signaled interest rates will remain elevated to combat inflation, a stance supported by a resilient US labor market that added 187,000 jobs in August 2023, beating expectations. This contrasts with a more hesitant ECB, which is grappling with signs of a slowing economy across the Eurozone.<\/p>\n
Recent data makes put options or bear put spreads on the currency pair appear more attractive. While Eurozone inflation remains high at 5.3% as of August, recent PMI data for Germany, the bloc’s largest economy, has consistently pointed toward economic contraction. This economic divergence between a relatively strong US and a weakening Eurozone adds significant weight to the bearish case.<\/p>\n
We can look to the 2014-2015 period for a historical parallel, where a similar policy divergence led to a prolonged decline of over 20% in the EURUSD. During that time, rallies were consistently sold, a pattern that is emerging again today. This historical precedent suggests that any short-term strength should be viewed with skepticism until a major technical or fundamental shift occurs.<\/p>\n
With the pair now testing a critical support zone, we anticipate a potential increase in implied volatility. Traders could position for a breakdown below the 1.1614 level, but should use defined-risk strategies. A sharp, unexpected reversal from this area could quickly erase profits from more aggressive bearish positions.<\/p>\n
For now, we see little reason to fight this downtrend. Until the price can decisively move back above the broken 200-hour moving average, we will treat any upward movement as a corrective bounce within a larger decline. The path of least resistance appears to remain lower.<\/p>\n
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