EUR/USD: Increasing bearish pressure

<p>The euro fell broadly against other major currencies on Tuesday as the US dollar surged, placing renewed and intensified pressure on the EUR/USD currency pair. […]</p>

The euro fell broadly against other major currencies on Tuesday as the US dollar surged, placing renewed and intensified pressure on the EUR/USD currency pair.

For a week and a half now, EUR/USD has been trading under the key 1.1100 resistance level since its breakdown below that level in late October. In the process of breaking down below 1.1100, the currency pair also broke down below its 200-day moving average as well as a major uptrend line extending back to March’s 12-year low.

EUR/USD’s recent declines within the past two weeks have been prompted largely by market interpretations of central bank comments. On the euro side, European Central Bank (ECB) President Mario Draghi recently struck a dovish tone, alluding to further stimulus measures as early as December. This provoked a large and immediate sell-off of the euro that continued for two days before stabilizing.

On the dollar side, last week’s relatively hawkish Fed statement increased speculation over a potential December rate hike in the U.S. This resulted in an immediate surge for the US dollar that quickly steadied but appears to have begun picking up again this week.

EUR/USD Daily Chart

 

With the recent technical breakdown of EUR/USD combined with apparently divergent monetary policy between the ECB and the Fed, the prospects for the currency pair appear dim.

From a technical perspective, the bearish scenario under 1.1100 resistance would see an imminent breakdown below last week’s low of 1.0895. From there, the major downside target is at the key 1.0800 support level, last retested in July. On any further breakdown below 1.0800, the next downside objective is at the 1.0500 level, right around the currency pair’s long-term lows earlier this year.

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