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EURUSD: downwards correction to take us to 1.1240


On Wednesday the 10th of July, trading on the EURUSD pair closed up by 60 pips. There was a surge in volatility in the US session during Fed Chair Jerome Powell’s testimony to the US House of Representatives. He hinted that the Fed could lower interest rates at the end of July due risks to the global economy. His remarks were taken to mean that the Fed is prepared to lower rates at the end of the month. After Powell’s testimony, US 10-year bond yields dropped by 3.3% to 2.04%. This means that markets are bracing themselves for a rate slash, which is good for more volatile assets.

Day’s news (GMT 3):

  • 12:30 UK: financial stability report.
  • 14:30 Eurozone: ECB monetary policy meeting accounts.
  • 15:30 Canada: new housing price index (May).
  • 15:30 US: initial jobless claims (5 Jul), CPI (Jun).
  • 17:00 US: Fed’s Chair Powell testifies.
  • 19:15 US: Fed’s Bostic speech.
  • 21:00 US: monthly budget statement.

Current situation:

Yesterday didn’t turn out as expected. During the Fed’s chair’s testimony, the bull army triggered the stop levels above 1.1235. The pair recovered to 1.1260, and the dollar’s decline continued to 1.1281 in today’s Asian session.

At the time of writing, the euro is trading at 1.1269. Since the upwards movement stopped at the 67th degree, and a bearish divergence has formed between the rate and the AO, today I’m expecting to see a downwards correction to 1.1240. I’ve drawn a channel with dashed lines on the chart, from which I’m expecting a downwards breakout. The 45th degree is at 1.1230.

Sometimes you get moments of inactivity among bears on the market, and the rate keeps climbing on the back of fundamentals, which under the current scenario would form a third higher high within the channel. This shouldn’t be ruled out as a possibility.

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