August 24, 2021

EUR/USD Downtrend Bounce Ahead?

 We’ve got a quick bounce in EUR/USD to start off the new week. Is this an opportunity to play the downtrend at better prices, or is the bottom in for the forex pair?

EUR/USD Downtrend Bounce Ahead?

Even with the Jackson Hole Symposium ahead (an annual meeting of the world’s top central bankers, finance ministers, and economic experts) to likely keep traders on the sidelines, there’s enough on the economic calendar to likely bring a little bit of action to EUR/USD this week. We’ve got the latest business sentiment out today from both the U.S. and Europe potentially kickstart some action, as well as a preliminary GDP read from the U.S. later in the week.

Today’s business sentiment data from both economies showed net negative sentiment in both regions, arguably more negative for the U.S. than the Euro area, albeit both still showing expansionary conditions. These updates may continue to lift EUR/USD higher for the next few sessions as risk-on sentiment seems to be back at the moment, and if that brings the pair to the 1.1750 to 1.1800 area, that’s where we’ll be on the lookout for a potential shift short-term sentiment.

On the four hour chart above of EUR/USD, we can see that this 1.1750 to 1.1800 area is one of previous interest, which originally held as support in July before breaking in August. If retested, this pair could draw in potential EUR/USD bears if U.S. GDP posts a better-than-expected read of +6.6% AND we don’t hear overly cautious rhetoric from the Federal Reserve Members speaking at the Jackson Hole Symposium this week.

With fresh covid developments leaning positive today (e.g., China reports no new local Covid-19 cases for first time since July, FDA grants full approval to Pfizer-BioNTech’s Covid shot, clearing path to more vaccine mandates) sparking some optimism of the world avoiding a major recession, this could be enough to avoid bearish comments from the Fed and a return to taper speculation being priced in (bearish for EUR/USD?).

If this scenario plays out and we see bearish patterns on EUR/USD around the 1.1800, we’ll considering putting on a swing position to the short side as the potential return-on-risk is favorable if using a tight stop above 1.1850 and going for a longer-term move lower with the overall trend. And of course, if the Fed does signal an end to tapering talks for now, that could spark a very bearish reaction in the U.S. dollar, potentially moving EUR/USD to easily break above 1.1800 and beyond.

What do you guys think? Will EUR/USD bounce further in the next few sessions? Will sellers take over at the 1.1800 handle and return the pair to the downtrend? Or will we get fresh catalysts that mark the end of the bear run. 

Let me know in the comments below, and as always, remember to never risk more than 1% of a trading account on any single trade. Adjust position sizes accordingly. Create your own ideas and don’t simply follow what I do.