Euro Confirmed Reversal

Pressure on the euro returned this week, marking a sell-off against the broader currency front, signalling the possible start of a prolonged downward trend.

EUR/USD is flirting with an upper bound of the 1.1600-1.1700 area, where it has repeatedly received support from buyers over the past 12 months. However, the dynamics of the single currency against many other major competitors reflect a reversal to the downside. This is an important signal that the markets have switched to another gear.
 
This week, EUR/JPY slid below its 200-day moving average as an essential confirmation of the down reversal that started in June. The latest downside momentum confirmed a head-and-shoulders pattern with the potential to pull back from the current 128.4 to 122.5, where the pair last traded in November 2020.

An equally eloquent dip we saw yesterday on the EUR/CHF. At the beginning of the month, the pair was gaining support on the decline to 1.0720. The Swiss National Bank was likely behind the rebound, trying to stop a five-month plunge, which began to look particularly worrisome in July.
 
On Tuesday, the pair rewrote its lows from last November and, at the time of writing, remains near 1.0700. Will the SNB come in for support this time too? So far, it looks unlikely, as it appears more and more like a history of the euro falling rather than the franc rising. However, an uptrend in the pair cannot be ruled out during the trading in Europe today.

Interestingly, the single currency manages to develop gains against the pound after updating its lows since February 2020.
 
Fundamentally, the pressure on the euro is due to the slowdown in China and the high prices of raw materials and energy that Europe imports. Also worth noting is the rise in the dollar after yesterday’s data. Retail sales fell more sharply than expected but remain at elevated levels relative to the long-term trend.

The Fed reported industrial production growth of 0.9% for July. The market reacted with the higher dollar buying on both news due to heightened expectations of an imminent policy reversal.

The FxPro Analyst Team