On Tuesday, EUR/USD retraced up again. It may well be that the pair will be stuck in the sideways channel for a long time. In our previous reviews, we talked about the possibility of a flat market. Although the pair's movement last week was in no way similar to it. Therefore, there is now no need to build up a sideways channel. At the same time, there is no trend either. EUR/USD is trying to retrace up, though unsuccessfully. Technically, the euro fell to 0.9900 and updated its 20-year how. Since then, it has been hovering around this low for a week, being unable to retrace properly. In our view, this does not mean that the downtrend is over. Consequently, the bear trend is likely to resume after another attempt to enter an upward correction.

Fundamental and geopolitical factors are now providing support for the euro. Despite that, the currency is still unable to show significant growth. Traders refuse to buy the currency in the strongest bear market. Still, this trend will end one day with a steep rise. So far, there is absolutely no increase. Therefore, we believe, the pair may fall by 400-500.

Hawkish European Central Bank

This week, some ECB members said there could be a 0.75% rate increase in September. Earlier, there was speculation of the second 0.5% rate hike. However, it did not prevent the euro from dropping. If the ECB decides to raise rates by 0.75%, they will reach 1.25%. Meanwhile, the Federal Reserve could lift the interest rate to 3% in September. Still, the ECB has started to act. Its main goal now is to bring inflation to the 2% target. The bank could follow the Federal Reserve's suit, which is good for the euro in the long run. The US central bank will stop hiking rates one day. This is when the euro and the pound will get stronger. Still, a lot of time will pass before it happens.

Meanwhile, the geopolitical situation has somewhat improved. Serbia-Kosovo tensions eased. The countries agreed to peace, Serbia agreed to abolish entry/exit documents for Kosovo ID holders and Kosovo agreed to not introduce them for Serbian ID holders. Anyway, this has had little effect on the euro. Rather, its recent growth was just a technical correction. Therefore, should a conflict between Serbia and Kosovo arise, traders would start to sell off risk assets. Meanwhile, they are not ready to buy them as tensions ease. Overall, the global geopolitical situation remains difficult.

On August 31, the volatility of EUR/USD totals 103 pips. Today, the pair is expected to move in the range between 0.9921 and 1.0123. Heiken Ashi's downward reversal could indicate the start of a new downtrend.

Closest support levels:

S1 – 1.0010

S2 – 0.9949

S3 – 0.9888

Closest resistance levels:

R1 – 1.0071

R2 – 1.0132

R3 – 1.0193

Outlook:

The EUR/USD is retracing up. If Heiken Ashi reverses downward, short positions could be opened with the targets at 0.949 and 0.9921. The pair consolidated above the MA with the targets at 1.0071 and 1.0123, so long positions could be held.

Indicators on charts:

Linear Regression Channels help identify the current trend. If both channels move in the same direction, a trend is strong.

Moving Average (20-day, smoothed) defines the short-term and current trends.

Murray levels are target levels for trends and corrections.

Volatility levels (red lines) reflect a possible price channel the pair is likely to trade in within the day based on the current volatility indicators.

CCI indicator. When the indicator is in the oversold zone (below 250) or in the overbought area (above 250), it means that a trend reversal is likely to occur soon.