EUR/USD – Further pain to come?

Craig Erlam

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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