【EUR/USD】1-Hour Chart Analysis - May 7, 2025

EUR/USD Analysis – Preparing for a Downtrend as Indicated by Moving Averages and ADX; Caution Advised Below 1.1340

Overview (May 7, 2025)

EUR/USD continues to hover around the 1.1340 level. While the 4-hour and daily charts remain within a range, multiple bearish signals are emerging on the hourly chart. The short-term moving average is trending below the long-term average, and the behavior of the DMI and ADX suggests increasing selling pressure, indicating a potential shift to a downtrend.

Particularly, the 1.1340 level is a significant line where recent lows and psychological support converge. A break below this level could lead to a sharp decline toward the 1.1300–1.1280 range. Conversely, even if a rebound occurs, selling pressure is expected around the 1.1360–1.1370 area, making this a critical point to watch before a clear trend emerges.

Key Point 1: Bearish Signal Indicated by 50-Hour and 200-Hour Moving Averages

Moving averages are among the most closely watched indicators in technical analysis. Currently, EUR/USD is nearing a "death cross," with the 50-hour moving average (blue line) positioned below the 200-hour moving average (red line), indicating strengthening short-term downward pressure.

Furthermore, candlesticks are trading below both moving averages, which are acting as resistance lines. Notably, the upper wicks of the candlesticks are repeatedly being suppressed, revealing the weakness of buying momentum. A break below 1.1340 would confirm the death cross of the moving averages, potentially leading to accelerated selling.

Key Point 2: Initial Trend Indicated by ADX and DMI

The ADX (yellow line), a trend indicator displayed at the bottom, currently sits around 0.015. While this level does not yet indicate a clear trend, the gradual upward slope of the ADX suggests an increasing likelihood of a directional move in the near future.

Additionally, the DMI components show the -DI (red line) above the +DI (green line), confirming that selling pressure is dominant in the market. These signals are considered indicative of the "prelude to a trend," making this a favorable timing for breakout strategies.

Key Point 3: Assessing Seller Commitment Through Volume and Candlestick Patterns

Volume movements are also noteworthy. Recent candlesticks show a tendency for volume to increase during declines, supporting the notion that selling momentum is strengthening. Particularly, when small-bodied candlesticks with long wicks appear consecutively, it often serves as a precursor to directional movement, suggesting an upcoming increase in volatility.

If the next large bearish candlestick forms below 1.1340 accompanied by increased volume, the credibility of the selling trend will significantly rise, presenting a highly effective entry point for short-term selling trades.

※Image Source: cTrader Platform

Future Outlook and Trade Strategy

• The Battle at 1.1340 is Crucial: A clear break at this level would technically signal a confirmed trend.
• Whether ADX Exceeds 0.020: This would confirm the emergence of a trend. If surpassed, short-term trend-following strategies become effective.
• Sell-on-Rally Points at 1.1360–1.1370: Even if a rebound occurs, failure to surpass this zone would reinforce selling pressure.

Example Trade Scenarios

Scenario 1: Clear Downward Break
Entry: Establish a short position after confirming a break below 1.1340
Take-Profit Target: 1.1300–1.1280
Stop-Loss: Above 1.1375

Scenario 2: Short-Term Long from Support Rebound
Entry: Go long after confirming a lower wick rebound at 1.1340
Take-Profit Target: 1.1370
Stop-Loss: Below 1.1330

Summary:

The hourly chart of EUR/USD suggests a high probability of transitioning into a short-term downtrend. The alignment of moving averages, movements of ADX and DMI, and increasing volume all point to a "sell-dominant" market condition. Moving forward, closely monitoring a clear break below 1.1340 and the rise in ADX levels is essential. Implementing a sell-on-rally strategy or breakout approach with limited risk is advisable.

Disclaimer:

This article is intended for informational purposes only and does not constitute a recommendation to buy or sell any specific financial instrument. All investment decisions should be made at your own discretion and responsibility.
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