The EUR/USD is on a steady decline, with only small upward corrections, indicating a clear downward trend. The pair has fallen below an important swing area between 1.1614 and 1.16309, which now acts as a risk marker for sellers. Staying below this range points to a bearish outlook. Next targets to watch are a minor support zone between 1.1555 and 1.1561. Furthermore, the level of 1.15378 represents the 38.2% retracement of the rally from May to July, making it a key target if the decline continues.

Moving Average Analysis

On the 5-minute chart, the 100-bar moving average is falling and currently at around 1.16475. This average sets the short-term risk. If the price rises above 1.16309 but doesn’t stay above the 100-bar MA, this supports a bearish outlook. The rapidly declining average is approaching the 1.1630 level, reinforcing this bearish sentiment. Given the strong downward momentum, we believe traders should prepare for further declines in the coming weeks. This is mainly due to the widening gap in policies between the US Federal Reserve and the European Central Bank. This difference makes the US dollar more appealing than the euro, putting ongoing pressure on the pair. Supporting this view, recent data indicates that US inflation in March remained stubbornly high at 3.5%, which pushes back the timeline for expected Fed rate cuts. In contrast, Eurozone inflation has dropped to 2.4%, raising the odds that the ECB might lower rates as soon as June. This fundamental mismatch supports a continued downward trend for the currency pair. For traders, this environment favors strategies that benefit from falling prices or limited gains. Buying put options to bet on a drop toward the next key support levels is a good idea. Alternatively, selling out-of-the-money call spreads can generate income while betting that any upward movements will be limited.

Managing Positions and Historical Context

The identified key swing area is crucial for managing these positions. If the price fails to break back above this ceiling, it reinforces the need to hold or add to bearish positions. The declining short-term moving average can also help time new entries during any minor intraday price bounces. Historically, significant differences in monetary policy, like those seen in 2014 and 2022, have caused prolonged declines in the pair. The current economic situation is quite similar, suggesting that a move toward the 38.2% retracement target is likely. Therefore, we should be skeptical of any corrective rallies unless there’s a fundamental shift in the underlying economic data. Create your live VT Markets account and start trading now.

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