Forex Trading Alert: How Low Could EUR/USD Go?

The European Central Bank cut interest rates to a record-low 0.05% from 0.15%, surprising most market participants. As a result, EUR/USD dropped to a 14-month low, declining below the strong support zone. Are there any important levels that could stop currency bears' charge?

In our opinion, the following forex trading positions are justified - summary:

EUR/USD: none
GBP/USD: none
USD/JPY: none
USD/CAD: none
USD/CHF: none
AUD/USD: none

EUR/USD

The medium-term picture has deteriorated significantly as EUR/USD accelerated declines after a drop below the recent lows and the 70.7% Fibonacci retracement level. With this downward move, the pair reached the 88.6% Fibonacci retracement, which is currently reinforced by the long-term green support line based on the Nov 2012 and Jul 2013 lows. We think that this strong support area should at least paused further deterioration in the nearest future and triggered a corrective upswing. Why this scenario is quite likely at the moment? Let's take a closer look at the daily chart and find out.

From this perspective, we see that EUR/USD declined not only to the support levels that we discussed earlier, but also approached the 161.8% Fibonacci price projection. On top of that, in this area, the size of the downswing corresponds to the height of the declining wedge, which may reduce the selling pressure in the near future. Therefore, if this support zone holds, we may see a corrective upswing to at least the recent highs around 1.3145-1.3160. Please note that despite all these positive technical factors, we should keep in mind that there are no buy signals, which could support currency bulls.

Very short-term outlook: mixed
Short-term outlook: mixed
MT outlook: mixed
LT outlook: bearish

Trading position (short-term): In our opinion no positions are justified from the risk/reward perspective at the moment.