The euro (EUR) is hovering slightly above 1.09 against the US dollar (USD) on Monday as investors grapple with mixed signals from central banks and await key inflation data from the US later this week. The European Central Bank (ECB) maintained its hawkish stance last week, pushing back against expectations of imminent rate cuts despite a weakening eurozone economy. However, dovish comments from individual ECB members, coupled with the Federal Reserve’s recent hints at potential rate cuts next year, are keeping the euro afloat.
The Bank of Japan (BOJ) is also in focus this week, with its two-day policy meeting kicking off today. While analysts don’t expect a definitive shift away from negative rates at this meeting, any hints of future tightening could provide a challenge to the euro’s current bullish run.
On the data front, investors are eagerly awaiting the US core personal consumption expenditure (PCE) index, the Fed’s preferred inflation gauge, due for release on Friday. A lower-than-expected reading could further fuel speculation of early rate cuts by the Fed, potentially strengthening the euro against the dollar.
Technical Analysis:
The EURUSD is currently trading above its key moving averages, indicating underlying bullish momentum. The recent break of the 20-SMA (green line) above both the 50-SMA (blue line) and 100-SMA (orange line) further confirms the positive trend.
However, the RSI, while not in overbought territory, suggests a potential for a pullback. The price action could find short-term support at the 1.08483 level if the 20-SMA currently resides. A break below this level could trigger further selling, potentially bringing the 1.07589 support level into play.
On the upside, the initial resistance lies at 1.10161. A sustained push above this level could pave the way for further gains towards 1.10862 in the near term.
Summary:
The EURUSD faces a crucial week ahead, with the BOJ meeting and the US inflation data likely to set the direction for the pair. While the potential for a dovish shift from the BOJ and a weak US inflation reading could boost the euro, the divergence in central bank policies and the risk of a hawkish surprise from the BOJ remain potential headwinds.
Sources: TradingView, Trading Economics, Reuters, Dow Jones Newswire, MT Newswire.
Piece written by Mfanafuthi Mhlongo, Trive Financial Market Analyst
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