FX.co ★ Crude | EUR/USD

The EUR/USD pair experienced a sharp decline, falling by approximately 200 basis points this week, as mounting macroeconomic pressures fueled a significant rise in the value of the US dollar. This decline began ahead of the crucial Federal Open Market Committee (FOMC) meeting, where the Federal Reserve announced the widely anticipated interest rate hike. However, the initial market reaction quickly reversed, with the dollar rising by another 100 basis points, driven by expectations of tighter monetary policy and forward guidance, surprising many market participants. This week, bullish efforts to stabilize the EUR/USD exchange rate relied almost entirely on expectations of a rate hike, pushing the euro close to key technical thresholds, most notably the bullish 19-period inequality indicator. This critical area now represents the last line of defense for the EUR/USD; a break below this level would expose it to the risk of a rapid decline towards the psychological level of $1.10 – a scenario that few analysts anticipated at the beginning of the year. While continued warnings from Federal Reserve officials about high inflation have provided ample fodder for a new round of short selling and the emergence of secondary structures such as the "downward imbalance 23," questions remain about whether monetary policy adjustments alone are sufficient to support long-term demand for the dollar. Despite the recent dominance of the US dollar, a broader analysis of fundamental information suggests that several factors continue to support the euro's medium-term outlook. Structurally, historical charts show that the euro's recent rally began from a relatively low annual valuation level, which opens up significant room for its long-term growth potential. Moreover, markets remain skeptical of the Federal Reserve's ability to continue its aggressive tightening cycle indefinitely, particularly given recent disappointing US economic data. The geopolitical conflicts that boosted demand for the dollar as a safe haven in the first half of the year have begun to subside, while the International Monetary Fund, which has implemented multiple rounds of monetary tightening, continues to normalize its monetary policy framework. Additional pressures on the dollar include the US Treasury's decision to expand its long-term bond-buying program, which will reduce direct demand for the dollar; the ongoing trade dispute between the US and Canada; and the modest improvement in the US labor market compared to previous cycles. As the trading week draws to a close, economic catalysts remain scarce. Trading activity surrounding events such as ECB President Christine Lagarde's speech and US industrial production data is minimal, and neither is expected to significantly impact market sentiment on Monday. Structurally, the recent EUR/USD move resembles a prolonged pause within a long-term uptrend, rather than a complete break of the underlying pattern. While a sell signal was triggered earlier this week at the "Disruption 22" level, and downward pressure remains possible from the "Downward Disruption 23" level, the pair's short-term downside targets remain concentrated near the 1.1406-1.1434 support zone. Ultimately, unless a permanent shift in the macroeconomic structure justifies the long-term dominance of the dollar, the ability of speculators to rise against the current trend depends entirely on how price action reacts when testing the equilibrium level of 19.