FX.co ★ EUR/USD. New realities, new goals, new boundaries

Traders of the EUR/USD pair found themselves in new realities, when the parity level no longer acts as a support, but as a price barrier, which is located 400 points from the price's current location. It cannot be said that the current situation is unique – no, at the beginning of the "zero", that is, more than 20 years ago, traders traded under the 1.0000 mark for two years. At that time, the price low was indicated around the 85th figure. To date, this target is still quite far away – more than a thousand points. But do not forget that the price has decreased by about 1,500 points in the last six months. At the same time, the rate of decline has only been growing lately: EUR/USD bears are sweeping away key support levels on their way, indicating the strength of the downward trend. Therefore, almost any bearish scenario needs to be considered as possible.

For example, the currency strategists of the Danish bank Nordea said that a breakthrough of the 0.9500 mark would lead to a further 500-point price reduction, to the 90th figure. BBH Global analysts have a similar opinion. At the same time, ANZ Bank economists are confident that the pair will form a price bottom around the 95th price level. In general, many experts consider the 0.9500 target as a key price milestone that will serve as the main support. And all subsequent events next year will unfold in the 500-point price range of 0.9500-1.0000.

Today it is difficult to predict the situation in the long term. The extremely unstable geopolitical situation, the approach of cold weather amid the energy crisis in Europe, the increased risks of stagflation and the rise to power of the ultra-right in Italy (the third largest economy in the EU) - all these factors will continue to exert the strongest pressure on the euro. The dollar is strengthening its position largely for the same reasons, using the status of a protective asset. Plus, the hawkish attitude of the Federal Reserve and the energy independence of the United States (at least compared to the European region). Such a fundamental disposition suggests that the EUR/USD pair will continue to be at the mercy of the downward trend.

However, it is necessary to repeat: in the current conditions, it is difficult to make long-term forecasts. Will the bears push through the 0.95 level and go into the 90th figure area, or will they form a price bottom around 0.9500? There is no definite answer to this question. But we can say with some confidence that the 0.9500 mark will act as the main target for EUR/USD bears in the medium term. And at the same time – as a key support level for the bulls.

Please note that EUR/USD traders actually ignore many fundamental factors that, in principle, can support the euro. For example, hawkish messages voiced by European Central Bank representatives. Mario Centeno, a member of the Board of Governors of the ECB, said that inflation will be "higher and less temporary", so the central bank will have to respond to the changed conditions. Also, Philip Lane, the chief economist of the central bank, voiced his position. In his opinion, inflation in the eurozone will begin to show the first signs of slowing down only in 2023. Earlier, there were signals from the ECB that the central bank needed to tighten monetary policy at a more active pace, given the ongoing inflationary growth.

However, these messages are actually ignored by EUR/USD traders.

Another noteworthy fact: bulls ignore negative signals from US statistics. In particular, it was just announced that the volume of orders for durable goods decreased by 0.2% in August, while most experts predicted an increase of 0.1%. Excluding transport, the volume increased by 0.2% with a growth forecast of 0.3%. The US housing price index was also disappointing. The indicator also appeared in the red zone, reaching -0.6%. This is despite the fact that analysts expected an increase of 0.7%.

In other words, the block of macroeconomic statistics that was just published in the US was disappointing. But EUR/USD traders ignored this fact. Bulls are actually marking time in one place, after the morning corrective momentum to the middle of the 96th figure.

All this suggests that the tone of trading is set by completely different fundamental factors, among which one can highlight the interest in risk (the degree of anti-risk sentiment amid geopolitical tensions) and the prospects for an aggravation of the energy crisis in Europe. Perhaps these are the key factors that influence the EUR/USD pair. It is no secret that Europe is now preparing for winter in conditions of limited gas supplies. In the absence of a fundamental solution to the energy crisis, the economic prospects of the eurozone will only worsen. This narrative exerts the strongest pressure on the euro, as it is voiced not only by European politicians and journalists, but also by representatives of the ECB and economists of the largest banks.

The growth of geopolitical tensions, in turn, supports the safe dollar, which is already resting on its laurels, having a hawkish Fed as an ally.

Thus, the current fundamental background does not contribute to the development of a large-scale correction for the EUR/USD pair. As for the bearish prospects, we also need to be careful here: the 0.9500 target looks like a key support level at the moment and at the same time the main target for the bears. It is advisable to enter short positions on corrective rollbacks.