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CFDs are complex instruments. 72% of retail client accounts lose money when trading CFDs, with this investment provider. You can lose your money rapidly due to leverage. Please ensure you understand how this product works and whether you can afford to take the high risk of losing money.

Where next for EUR/USD as it breaks support?

With the 61.8% Fibonacci retracement support broken the EUR/USD trade now looks set to use the 76.4% retracement at 106.54 as the next line of defence.

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Fundamentally, the US economy is growing with inflation moving lower. Conversely, in Europe, the German economy has gone into recession and there’s no indication that prices are under control. This is the worst of all worlds as the European Central Bank must continue to raise rates in the face of weak or contracting growth.

IGTV’s Jeremy Naylor looks at the chart and the levels to watch.

(Video Transcript)

US growth

We've just seen somewhat better than expected economic data coming through in the US economy on growth. It's not wildly exceeding expectations, it's just showing that there is growth, continues to bubble in the US economy and there's extra reasons there to continue to buy the US dollar.

The other added reason is that the dollar provides some sort of safety away from the turmoil of the markets as these negotiations continue about the US debt. The irony of course on that is that should there be a default, you want to steer clear of the dollar anyway.

EUR/USD

At the moment, the dollar is a safe haven and I thought I would pick up on this trade here, which is the euro/dollar trade because it's disappeared below what we've been following is a significant line in the sand.

In terms of its retracement, the euro is on the way down. We've got the stronger dollar looking as though we're going to close below this 10739. And if you get that close there, it will then be cementing the trade.

We/ve been talking about in the Early Morning Call, about a short trade bringing your stock losses in as we go. And this trade at the moment at 10718, at the next down downside price target is this 76.4% retracement at 10654. That would be your next stop off point if you don't have a trade on this and you're tempted into the short trade.

It's not a recommendation, it's just a positioning in the market. And I think where we are at the moment is worth looking at. Your stock would go at around about the 10770 level - 10715 is where we are. 10654 is a price target. If you see a continuation of trade beyond there, then the next trade and stop off point is a total replacement down to 10516.

But at the moment, at least certainly the euro is weaker against that stronger US dollar and the short trade at the moment at least is making money.


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