Breakdown of the 1.07 level will send EURUSD to the lows of 2023

25 May 2023 152
Breakdown of the 1.07 level will send EURUSD to the lows of 2023

The EURUSD currency pair continues to renew two-month lows. Today, quotes reached the level of 1.07 for the first time since the end of March. This level is very important for the further dynamics of the price, because in case of decrease continuation, a direct way to the levels of the beginning of the year, around 1.055 and lower will be opened. For the moment supporters of the unified European currency are able to resist bearish attacks, but there are no significant reasons for the EURUSD strengthening apart from the oversold state of the technical indicators.

 

The dollar continues to rise against most other world currencies, although yesterday reason for such dynamics was a bit paradoxical. Fitch agency announced a change in its forecast on the U.S. credit rating to "negative" level with the potential for a possible decline. Market participants remembered the year 2011, when S&P agency downgraded the U.S. credit rating by one point because of the global financial crisis consequences.

 

12 years ago, such events caused a real panic among investors and traders, followed by a sharp increase in demand for safe haven assets. And although dollar bonds should be massively sold off due to the downgrade of the U.S. credit rating, in reality, they became the main defensive assets in the market along with gold. Probably now the growth of demand for the U.S. currency has the same nature.

 

The euro, in turn, was under pressure today due to negative statistics on the German economy. Germany's GDP declined by 0.3%, according to the revised data for the first quarter of 2023. Considering the fall of the economy by 0.5% in the 4th quarter of the last year, two consecutive periods of negative GDP dynamics allow to state the recession beginning. The problems of the leading EU economy are clearly negative for the euro.

 

The first attempt to approach the level of 1.07 failed, but taking into account the current news background, this downward impulse obviously will not be the last one. In case the euro sellers are successful, the support level will sharply shift to the lows of the 1st quarter of this year, to the range of 1.05-1.055.

 

 

The following trading strategy option can be suggested:

 

Sell EURUSD at a breakdown of the 1.07 level from the top to the bottom. Take profit – 1.055. Stop loss – 1.082.

This content is for informational purposes only and is not intended to be investing advice.

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