The euro is extremely oversold. For this reason, it needs a rebound or a correction. However, the euro is trapped in the narrow range. During the European session, it declined albeit quite modestly compared to the day before.
Only after the opening of the US session, there were some signs of a rebound. As a result, the euro returned to its opening levels. Notably, the economic calendar remained completely empty.
Perhaps European traders see no prospects for the euro, while US ones are betting on its rise. Curiously enough, the euro is unable to rise partially due to the EU’s actions.
The European Union is mulling over steps to abandon Russian energy supplies by the end of this year. At the same time, it is still unclear how the eurozone is going to replace them. EU officials are hinting at the probability of an embargo on Russian oil and gas.
Analysts warn that this measure is likely to ensue chaos and panic in the energy market. Europe is extremely dependent on energy imports. There is no doubt that the euro area will bear the brunt of this decision. This is why the euro is lacking the strength to recover. It is also unable to drop lower as it is extremely oversold. Thus, it is likely to remain flat today.
The euro/dollar pair halted its fall after having approached the low of 2016. It led to a decrease in the volume of short positions. The pair managed to grow by about 70 pips.
The RSI technical indicator has left the oversold zone on the 4H chart, confirming the current pullback. On the H1 chart, the indicator is moving near the 50-midline, signaling a slowdown in the rebound.
The Alligator indicator shows a medium-term downtrend on the H4 and the D1 charts. The moving averages are pointed downwards.
On the D1 chart, the euro is trying to prolong the downtrend. In the future, this movement may trigger a breakout of parity.
Outlook
A pullback has been replaced by stagnation in the range of 1.0350/1.0420. The optimal trading strategy is a breakout of one of the narrow range boundaries.
As for trading signals, a buy signal appears if the price consolidates above 1.0450 with an upward target of 1.0500.
It is better to open short positions if the pair dips below 1.0325, the swing low of 2016.
The complex indicator analysis gives a mixed signal on the short-term and daily charts due to price stagnation. Technical indicators signal short positions on the medium-term charts due to a downtrend.