The EURUSD currency pair found stability on Friday following a dynamic session that concluded on a relatively even keel in response to the latest US inflation report. The report revealed year-over-year inflation at 3.4%, surpassing the 3.2% forecast. Meanwhile, core inflation held at 3.9%, not decelerating as much as the market had anticipated. Predictions were for a contraction from 4% to 3.8%.
The initial surge of the US dollar claimed some gains, pushing the currency pair lower. However, a retracement quickly followed, with the market recovering from the losses. Traders maintained their steadfast positions, holding on to expectations for the Federal Reserve’s potential first rate cuts in March.
In addition to these dynamics, dovish developments in the Eurozone also played a role. Christine Lagarde noted that the most challenging phase regarding inflation was likely in the past, hinting at the possibility of rate cuts if inflation retreated to the 2% target.
Technical
The EURUSD pair is gradually ticking up on the 4H chart in a channel formation, while the 25-SMA (green line) crossed above the 50-SMA (blue line) to confirm a short-term bullish presence. The 50-SMA offers support and could prevent a test of the dynamic support of the channel. However, a break below the 50-SMA could signal the currency pair’s vulnerability to a breakdown.
If the channel breakdown occurs, the demand zone at 1.0934 could become a likely destination for the market to look for a rebound. If a retest does not occur from this support, the breakdown could be sustained, bringing lower support at 1.0912 and 1.0897 into the picture.
However, if the 50-SMA support holds, the current channel could continue to push the price higher. Resistance at 1.0968 and 1.0987 could be of importance within the channel before a potential breakout could result in a test of the Fibonacci midpoint from the early January bottom at 1.1009.
Summary
After a volatile session on Thursday, the EURUSD currency pair is looking for stability within its current channel formation. Support at the 50-SMA is keeping the channel in play and could play a vital role in preventing a breakdown in the upcoming sessions.
Sources: Koyfin, Tradingview
Piece written by Tiaan van Aswegen, Trive Financial Market Analyst
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