The EURUSD pair unfolded a compelling narrative in 2023, breaking free from a two-year descent to embrace a newfound trajectory. The Euro, marking a notable gain of 3.16% against the Greenback, emerged from the shadows as risk appetite grew, heralding a shifting market sentiment that cast a shadow over the once-dominant Greenback.
A crucial catalyst for this dynamic shift was the changing landscape of U.S. price pressures, with inflation inching closer to the coveted 2% target, setting the stage for potential rate cuts in the near future. By echoing this sentiment, markets now anticipate a 72% probability of rate reductions as early as March, aligning with the Federal Reserve’s projection of a potential 75 basis points reduction in rates for 2024.
The spotlight now turns to pivotal economic indicators. Euro Area inflation data and the much-anticipated FOMC Minutes and U.S. Nonfarm Payrolls report take centre stage, eagerly awaited by market participants keen to decipher the fundamentals guiding the EURUSD pair’s trajectory.
Technical
Toward the conclusion of 2023, the EURUSD currency pair embarked on a three-week streak of gains within a prevailing uptrend, confidently poised above the 100-day moving average in an ascending channel pattern.
Amidst this ascent, a notable support materialized at the 1.07238 level, where oversold conditions on the Relative Strength Index (RSI) heralded a reversal, propelling the pair past the psychological barrier of 1.10000. However, the journey encountered a ceiling at the 1.11497 resistance level, marked by overbought RSI conditions, triggering a retracement as the pair succumbed to downward pressures.
Now, the spotlight shifts to the 61.80% Fibonacci Retracement Golden Ratio, a crucial juncture in this narrative. Should substantial downside volume herald a sustained breakdown below this Golden Ratio, the 1.07238 support level may emerge as a point of interest, signalling a continuation of the downside momentum. Conversely, if the Golden Ratio proves its mettle as a potential support amid the current oversold RSI conditions, a reversal could be likely, potentially setting the stage for the 1.11497 resistance level to re-enter the fray.
Summary
In 2023, the EURUSD pair witnessed a remarkable turnaround amid shifting market sentiments and evolving economic landscapes. While a promising uptrend prevailed, key levels like 1.07238 and 1.11497 dictated the pair’s trajectory, offering pivotal points to gauge potential points of interest.
Sources: CME, Reuters, TradingView
Piece Written By Nkosilathi Dube, Trive Financial Market Analyst
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