Recently, we’ve observed a distribution phase in EUR/USD, followed by a markdown, confirming the overall bearish trend visible on both the daily and weekly timeframes.
Key Observations:
Bearish Structure:
- On the daily timeframe, price is consistently creating supply zones and showing strong reactions to them.
- The market structure confirms the downtrend with the formation of lower lows and breaks to the downside.
EMA Interaction:
The price is currently surfing downward along the EMAs, which are acting as dynamic resistance and reinforcing the bearish momentum.
Scenarios to Watch:
- Continuation: Price could continue its markdown, heading toward the short-term target and potentially testing the psychological level of 1.0000.
- Re-distribution: There’s also a possibility of a move upward, creating a re-distribution phase to accumulate enough liquidity for a stronger push below 1.0000.
Fundamental Insights:
Strength of the US Economy:
The US dollar remains strong due to:
- Higher interest rates maintained by the Federal Reserve to combat inflation, which increases the demand for USD-denominated assets.
- Strong labor market data, with low unemployment and rising wages supporting consumer spending.
- Positive GDP growth, reflecting resilience in the US economy despite global economic challenges.
Weakness in the Eurozone:
European economies are facing multiple headwinds, including:
- Energy concerns driven by geopolitical tensions, leading to higher costs for businesses and consumers.
- Slow economic growth as inflation continues to weigh on consumer spending.
- Divergence in monetary policy, with the European Central Bank (ECB) appearing more cautious about aggressive rate hikes compared to the Fed.
The combination of these factors makes the USD fundamentally stronger, while the EUR struggles under the weight of economic and geopolitical challenges.
My Perspective:
Given the strong bearish structure, EMA surfing, and fundamental backdrop, I expect further downside momentum. However, the possibility of a re-distribution phase cannot be ruled out, especially if liquidity is needed to push below the 1.0000 level. Staying cautious and reactive to price action around key levels will be crucial.