The EURUSD pair is on a downward trend and has hit new session lows. It’s currently testing an important support range between 1.1614 and 1.1631, which is based on earlier swing levels. Previously, a short rally came to a halt around 1.1769, close to the 1.1787 resistance linked to July’s highs. The momentum shifted after breaking through the 50% midpoint of July’s range at 1.1693 and the 200-hour moving average at 1.1687, which reinforces the bearish outlook.

Key Support and Resistance Levels

The current support zone between 1.1614 and 1.1631 may attract buyers. However, the overall trend is still downward with few signs of recovery. Intraday traders should keep an eye on the 1.1664 level, which is the initial resistance point from early US sessions. If the price holds above this level, short-term buyers might see a minor gain. Yet, a stronger challenge lies at the 100-bar moving average at 1.1675, creating a tougher barrier. For buyers to regain control, prices must climb above these resistance levels. If they fail to do so, the downward trend towards 1.1614 could be at risk of breaking. Given the ongoing downward pressure on the EURUSD, we believe traders should prefer bearish strategies in the coming weeks. The pair has struggled to maintain gains, indicating that sellers are still firmly in control. This situation makes long positions, like buying basic call options, relatively risky.

Impact of US and ECB Monetary Policies

The primary reason for this decline is the growing policy gap between the US Federal Reserve and the European Central Bank (ECB). The Fed has indicated that interest rates will stay high to curb inflation, supported by a strong US labor market that added 187,000 jobs in August 2023, exceeding expectations. In contrast, the ECB is more cautious, facing signs of a slowing Eurozone economy. Recent data makes put options or bear put spreads on the currency pair more appealing. While inflation in the Eurozone remains high at 5.3% as of August, the latest PMI data from Germany, the largest economy in the bloc, has consistently pointed toward economic contraction. This economic divide between a robust US and a weakening Eurozone strengthens the bearish case. We can reference the 2014-2015 period when a similar policy divergence caused a significant decline of over 20% in the EURUSD. During that time, rallies were consistently sold, and we are starting to see this pattern again today. This historical example suggests that any short-term strength should be met with skepticism unless there is a major technical or fundamental change. Now that the pair is testing a critical support zone, we expect increased implied volatility. Traders might prepare for a breakdown below the 1.1614 level but should use defined-risk strategies. A sudden reversal from this area could quickly wipe out profits from more aggressive bearish positions. For now, we see little reason to resist this downtrend. Unless the price moves decisively above the broken 200-hour moving average, we will view any upward movement as a corrective bounce within a larger decline. The easiest path appears to be downward. Create your live VT Markets account and start trading now.

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