EUR/USD signal: bearish forecast as a risk-off sentiment prevails

The EUR/USD exchange rate plunge continued this week as traders waited for statements by central bank officials at the Jackson Hole summit. It dropped to a low of 1.0772, the lowest level since June 13th of this year. 

Jackson Hole Summit ahead

The EUR/USD has been in a strong sell-off as forex investors focused on the performance of the US dollar index (DXY) and American bonds. The dollar index jumped to $104, as investors embraced a risk-off sentiment.

American bond sell-off continued as the 10-year and 30-year jumped to the highest level in more than a decade. This jump pushed mortgage rates to a 22-year high while loan delinquencies have risen.

The next important EUR to USD news will come from the US, where economists and central bank officials are meeting at the annual Jackson Hole summit. This event will be headlined by Jerome Powell, the head of the Federal Reserve.

Analysts believe that Powell will maintain a mildly hawkish tone as he commits to keep fighting inflation. Such a move will point to at least one more rate hike in September followed by a prolonged pause.

It is worth noting that the next FOMC meeting will happen in the final week of September. By then, the US will have published the next set of jobs and inflation numbers. I believe that these data will determine the next actions of the Federal Reserve.

Hopes of another rate hike will be confirmed if the US publishes strong inflation numbers in September. 

EUR/USD technical analysis

EURUSD chart by TradingView

The daily chart shows that the EURUSD pair has been in a strong bearish trend. It has now moved to the lower side of the ascending channel. The lower side of this channel connects the lowest levels on March 14th and June 1st. 

Further, the pair has dropped below the important 25-day and 50-day moving averages. It has also slipped below the three lines of the alligator indicator. 

Therefore, the outlook of the pair will depend on whether bears will be able to move it below the lower side of the channel. If this happens, the next level to watch will be at 1.0623, the lowest level on May 30th. In a note, analysts at UOB wrote that: