On Monday the 27th of August, trading on the euro closed up against most of the majors. This was brought about by the US dollar declining across the board, which was a response to Fed Chair Jerome Powell’s remarks on Friday. The market took his words to mean that the regulator is willing to slow down the process of increasing interest rates to a degree.
With some help from the crosses, the euro jumped to 1.1694. In Asia, the bulls pushed further to 1.1697.
Day’s news (GMT+3):
Fig 1. EURUSD hourly chart
The pair’s rise stopped at the 135th degree. The pair is currently trading at 1.1673. The greenback is currently trading up against all the majors, although the bulls are now providing support to the crosses. From a technical standpoint, the pair is ready for a drop. Several of the conditions for a downwards correction have been met:
Europe’s economic calendar is empty. The bears need to move their feet today and close the day at 1.1650 or lower. In this case, a reversal hammer / pin bar / shooting star will form on the daily timeframe. Call it what you like, it’s a bearish signal. If we apply a Fibonacci grid to this growth, then 38% = 1.1545. This is the low that could be reached by the downwards correction to the upwards movement from 1.1301.
Now the bulls on the crosses will take a break, and the euro will shoot down. In my forecast, I’m expecting an initial drop to 1.1638. If the trend line doesn’t hold firm, then we can start shorting the euro up to around 1.1595 – 1.1616. The stochastic is now in the buy zone, which is also bad. If the US dollar index unexpectedly reverses downwards, the euro will quickly recover its losses given the bullish trend on the hourly timeframe. Since 112 – 135 degrees mark a reversal zone, I’m expecting a downwards correction.