The stronger U.S. economy and the possibility of higher interest rates helped drive the EUR/USD lower in July. At the same time, Euro investors are starting to believe the European Central Bank may have to impose more aggressive economic stimulus on the Euro Zone in order to avoid deflation. Additional sanctions on Russia because of its active involvement in Ukraine is also influencing the price action as investors price in the possibility the sanctions will lead to further economic weakness.
Last month, the EUR/USD found resistance at 1.3700. This was also on a downtrending angle that drops in at 1.3513 this month.
The July low at 1.3366 fell on a steep downtrending Gann angle from the
1.3993 top. This angle, moving down .0320 per month, drops in at 1.3033
in August. If the selling pressure were to continue at last month’s pace
then this would be one likely downside target.
An uptrending angle from the 1.2744 bottom also provided some support
last month. This angle, moving up .004 per month, moves up to 1.3384 in
August. Taking out this angle will put further pressure on the Euro.
The short-term range is 1.2744 to 1.3993. The retracement zone formed by
this range is 1.3368 to 1.3221. The upper or 50% level of this range
was tested and held in July. Taking out this level with conviction could
lead to a steep drop into the lower or 61.8% level at 1.3221.
Traders need to watch the price action and order flow at 1.3368 to
1.3384 early in the month. Trader reaction to this area is likely to set
the tone for the month. Since the main trend is down on the monthly
chart, August starts with a strong bias to the downside.
Watch for a choppy trade inside 1.3368 to 1.3221. A sustained move over
1.3368 is likely to trigger some short-covering while taking out 1.3221
with conviction will be bearish.