The EUR/USD currency pair continues to bounce around a major support level which has been like a magnet for price. The 1.14 level is an area that has been both support and resistance on short-term charts, but when you fan out and look at longer-term charts, it is easy to see that over the last year this was an area that has been very well supported. This is not a huge surprise, and now it looks like we are about to make some type of bigger move sooner or later in the EUR/USD.
The overall market right now is one of a bit of uncertainty as the situation in the Middle East just isn’t getting any better. It isn’t exactly getting worse; it just isn’t going away, and this has traders worried about energy heading to the European Union this winter. That’s one of the biggest headwinds for the euro. Furthermore, you have to worry about the interest rate differential, which is going nowhere, with the 10-year yield in America hovering near 4.6%.
This means that shorting this pair is the direction that pays you. Evidence for this can be seen in the way that every time the price has recently risen into the $1.15 to $1.16 area, it gets sold. The market is just sitting right here on this support, and it is trying to do everything it can to break down.
EUR/USD Price Chart
Why Geopolitical Risk and Rising US Yields Are Pressuring EUR/USD
The 50-day EMA sits right at the 1.15 level and is driving lower. We had formed the death cross a while ago when the 50-day EMA crossed below the 200-day EMA, but I would also postulate that we have been in a range for well over a year, so you can’t read too much into what the moving averages are doing. Ultimately, though, on the way back up, the 50-day EMA could end up offering a little bit of resistance. It’s sitting just above the most recent swing high.
The Uncertainty of Ego
The biggest problem we have, of course, is that the entirety of decisions are going to be made by leaders that, quite frankly, don’t seem to have an idea as to how to get out of the conflict. I do think it’s becoming obvious that nobody really wants a larger war, but they almost don’t know how to get out of it because saving face is the major concern of most leaders. We will continue to be stuck in this range of semi-warfare.
As long as that’s the case, it’s going to have an effect on bond markets around the world, and in this case, most notably in America, as those interest rates rise because of a fear of an inflation shock via the energy markets. This could really cause the euro to fall apart because at that point in time, the value of the US dollar increases because it pays you to hold it.
Alternative Scenario: EUR/USD Holds 1.14 if Middle East Tensions Ease
On the other hand, if we get some type of resolution in the Middle East, it’s possible that we could see the euro be one of the biggest beneficiaries. That would just mean that this area, which had been support previously, would hold as support again, and we would reenter the consolidation area.
What EUR/USD Traders May Watch Next Around 1.1400
As things stand right now, it’s a bit of an open question, and there isn’t a whole lot that you can do with this trade other than trade it short term. And I think that’s what most people are doing. They’re just trading small, short-term micro movements, as that’s typical behavior for the euro anyway. It’s just behaving as the euro does. It just so happens that we’re in an area that, if we do break down significantly, it could send the euro plunging.
Ready to trade our EUR/USD analysis? Here is our list of the best brokers worth checking out.
Christopher Lewis is a technical analyst and market commentator at DailyForex with more than two decades of trading experience in Forex and other leveraged markets. Based in Columbus, Ohio, he specializes in chart-based analysis of major currency pairs, stock indices, commodities, and energy markets, focusing on clear support and resistance levels, trend structure, and risk management. Christopher produces daily written and video analysis for traders who rely on technical setups to navigate volatile market conditions
As seen on: Pairs Of Aces Podcast,The Trader Guy, FXEmpire
