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Trading the Trend: long EUR/USD

This week’s Trading the Trend is long EUR/USD above $1.10, after a pullback in the pair’s rally over the last three weeks. Risk appetite is dimmed following the downgrade of US credit by Fitch.

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(Video Transcript)

Fitch downgrade impacts markets

Welcome to Trading the Trend for Wednesday, 2 August 2023. We'll be looking at a slightly longer term move in a second for this week. Let's look back at last week, where we went long at natural gas. This one really hasn't moved over the past week. In fact, we've seen a little bit of weakness over the past couple of days. But, certainly, it's one, I think, that might have some more longevity to it.

Actually, with signs, perhaps, of energy demand increasing, it might be that the fundamental view continues to fall further upside in the price, even if, at the moment, we've yet to see much of a move. And that is most likely connected to the downgrade of US credit by six last night. So, there's been a bit of pressure on risk assets across the board, and natural gas is certainly not exempt from that.

Euro-dollar, natural gas hit by move

But if we look to this week, we're going to look at the EUR/USD, which is certainly an interesting position. And again, it's a bit of a tough one this week because of this US downgrade. It's really affecting markets across the board this morning. There's no escaping this. And natural gas is one, EUR/USD is another.

In fact, most markets are really mulling over the implications of this move. It's certainly not seeing further losses. But if we look at EUR/USD, this one, of course, has pulled back dramatically from where we were in July up around 1.1250. But the overall trend is still there, even if it perhaps looks a bit knocked back over the past three weeks or so.

But we're looking for this to continue really, perhaps, thanks to a caution on the Fed's part with regards to more interest rate hikes. And so if we do perhaps see a recovery in risk capital over the next few days and the pair moves back above 1.10, with daily close above this level and above trendline support, I think we're looking to continue to expect further upside here along this one for this trend with expectation that over the course of time it will push back towards 1.13 and higher. I think that's the key thing to watch out for.

So, the Trading the Trend for this week is to go long EUR/USD above 1.10. And we're going to put our stop down below this early July low at 1.0830. So that's Trading the Trend for Wednesday, the second quarter to go long EUR/USD with initial target 1.13 at a stop at 1.0830.

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