FX.co ★ EUR/USD analysis and forecast on June 13, 2022

The euro closed another trading week with huge losses. The reason for this was the meeting of the ECB and the press conference with its President, Christine Lagarde. Let's start with running inflation which has become a challenge for all major central banks these days. In the eurozone, inflation has accelerated to an all-time high of 8.1% on yearly basis! This dramatically contradicts the forecast for April when inflation was projected to rise to no more than 7.4%. However, even this estimate was the highest since January 1997 when the record began. Naturally, the ECB needs to do something to stabilize prices as this is seen as its main function stated in the mandate of the European regulator. Surprisingly, the ECB is hesitating to do this very thing.

Earlier, Christine Lagarde used to say that inflation was temporary and it would decline sooner or later. The US Federal Reserve used to say the same but it realized quickly that inflation might take longer and become more serious. The Fed admitted its mistake and launched a tightening cycle of rate hikes. In this regard, the ECB is lagging far behind its overseas colleagues. Now it needs to make up for the lost time. This is what market participants expected the ECB to do at its latest meeting on Thursday. However, traders were disappointed by the outcome as Christine Lagarde made it clear that the central bank will raise the rates cautiously and at a very slow pace.

So, in the best-case scenario, the rate will be lifted in July by no more than 25 basis points. Meanwhile, the Fed had already hiked the rate by 50 basis points in May and is planning to do the same at least twice this year. The difference in the pace of monetary tightening is obvious. This is the main reason why the EUR/USD pair is still trading in the bear market. It seems that investors tend to downplay macroeconomic factors and focus more on the policies of global central banks. Fortunately for us, technical analysis is still important to consider as it often helps determine the direction of the given instrument. Let's first analyze the weekly chart of the EUR/USD pair.

Weekly chart

I have to admit that my assumptions about a bullish engulfing of the indicated candlestick made a week ago did not come true. Of course, the ECB had its part in this, but we are now talking only about technical factors. Have a look at the correction against the major downtrend at 1.2266-1.0350. It hasn't even reached the first level of the 23.6 Fibonacci retracement according to the fibo grid. If a corrective pullback does not go beyond the 23.6 Fibonacci level, this means that the main trend is still strong and is likely to continue. There are exceptions sometimes, but in general, this is how it happens. As investors are disappointed by the ECB rhetoric, the candlestick marked on the chart will be a signal for further decline and a retest of the strong technical level of 1.0350. In case of a true breakout of this level and consolidation below the mark of 1.0300, the euro may face a serious drop and even reach the level of parity. This bearish scenario is widely confirmed by analysts at large commercial banks.

Since 2011, there have been so many speculations about the euro reaching the parity level of 1.0000 against the US dollar. Yet, bears have never approached this mark. The price zone of 1.0339-1.0350 has acted as strong support to stop the decline in 2016 and 2022. That is why the area of 1.0350-1.0300 is so crucial. Another important level, this time for the euro bulls, is the mark of 1.0635, a strong technical level where the lows in 2020 were recorded. If you look at trading records, you will see what I mean. If bulls manage to return the price above 1.0635, then they will be able to cancel or postpone the retest of 1.0350. Otherwise, the retest will take place and may even end with a breakout of this key technical mark. However, bears may take a short break before this move, so EUR/USD may be trading in a narrow range for some time. To sum it up, the weekly chart indicates the continuation of the downward scenario or at least some attempts to develop it.

Daily chart

On the daily chart, the same bearish trend is still in place. Please pay attention to the accurate technical performance of the EUR/USD pair which is very characteristic of this major pair. On Friday, the quote pulled back precisely to the broken support level of 1.0642, after which it reversed and resumed a decline. So, the resistance is located in the range of 1.0635-1.0642. Another technical feature is the decline of the price below the key level of 1.0600 and the blue Kijun line of the Ichimoku Indicator. Both factors signal further pressure on the euro. The level of 1.0500 serves more as a psychological level, while 1.0460 is an important technical barrier.

Given all the above, the nearest strong resistance zone is found at 1.0500-1.0460. I would assume that after such a long 2-day fall observed on the chart the quote is likely to initiate a correction. Whether it will start from 1.0500-1.0460 or a little bit higher is not so important. I would recommend opening short positions according to the main trend after a pullback to the price zone of 1.0558-1.0600. This is where the broken Kijun line and the level of 1.0600 are located. I think that this is all for today. Let's define entry points for EUR/USD in my next review tomorrow where I will focus on lower time frames.

Good luck!