EUR/USD – Further pain to come?

Sell-off accelerates in risk-averse trade

The decline in the EURUSD pair has really accelerated over the last week after the West imposed severe sanctions against Russia that will have implications for the global economy, in particular Europe.

Sanctions rarely work one way but they are designed to ensure the maximum and majority pain is imposed on the recipient country. Unfortunately for Europe, the recipient country is also an important trading partner and its main source of natural gas among other things which means pain at home was always inevitable, no matter how limited the impact was designed to be.

Which makes trading in this pair so interesting. Not only is Europe feeling the pain this week, with equity markets on the verge of bear market territory but the currency is also under pressure, particularly against a safe haven like the dollar.

The decline has seen the pair fall below 1.10 before finding some support around the bottom of a channel. The channel itself is not particularly well established but it has capped the losses for now.

That doesn’t mean the trend will reverse in any significant way. In fact, unless we see some significant positive progress in Ukraine, the path of least resistance looks below.

If we do see a correction from here, the first test comes around 1.10 with it being a potential psychological barrier. Above here, the region around 1.11-1.1120 looks interesting, being the next big round number, 38.2 fib, and prior support.

Whether it can get that far is another thing as these are very nervy markets which doesn’t bode well for risk currencies, particularly those heavily exposed to Russia.

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Craig Erlam

Craig Erlam

Senior Market Analyst, UK & EMEA at OANDA
Based in London, Craig Erlam joined OANDA in 2015 as a market analyst. With many years of experience as a financial market analyst and trader, he focuses on both fundamental and technical analysis while producing macroeconomic commentary. His views have been published in the Financial Times, Reuters, The Telegraph and the International Business Times, and he also appears as a regular guest commentator on the BBC, Bloomberg TV, FOX Business and SKY News. Craig holds a full membership to the Society of Technical Analysts and is recognised as a Certified Financial Technician by the International Federation of Technical Analysts.
Craig Erlam