The euro struggled below $1.09, nearing mid-December lows, facing pressure from a robust dollar as investors recalibrate rate cut expectations. Investors recalibrate interest rate cut expectations as ECB President Lagarde hints at a potential cut in the summer, emphasising caution amidst lingering uncertainties. ECB officials’ conflicting statements create a hawkish undertone, with expectations shifting to five quarter-point cuts in Q4 performance.
EU inflation rose to 2.9% in December, led by increased food prices. Lagarde’s cautious optimism on a summer rate cut contrasts with a more optimistic ECB tone, impacting European stocks. Lagarde’s dovish stance contributes to a dollar surge, hitting a one-month high.
Technical
The 4-hour chart paints a picture of indecision. The price action recently dipped below both the 20-SMA (green line) and 50-SMA (blue line) but remains precariously perched above the ascending triangle’s support line. The RSI’s downward slope adds to the bearish undercurrent, suggesting a potential downside towards the initial support at 1.07589.
However, a flicker of bullish hope remains. The upward-sloping 20-SMA recently crossed above the 50-SMA and 100-SMA (orange line), hinting at a possible shift in momentum. Should the bulls regain control, they could push the price action back towards the 1.10145 resistance level. A break above the 1.10145 level would likely bring the 1.11373 and 1.12758 resistance levels into play in the short term.
Conversely, short-term trading opportunities could exist towards the support level at the 1.07589 price level should the price action break below the triangle. A break below the initial support could confirm the bearish momentum, likely bringing the 1.06612 support level into play.
Summary
The EURUSD is at a crossroads, vulnerable to both hawkish headwinds and dovish tailwinds. Lagarde’s tempered rate-cut outlook echoes in market sentiment, propelling the Dollar. Technicals indicate potential bullish moves if resistance at 1.10145 is breached or bearish momentum towards 1.07589 if support falters. Dollar strength prevails amid global rate uncertainties, influencing the pair’s short-term trajectory.
Sources: TradingView, Trading Economics, Reuters, Dow Jones Newswire.
Piece written by Mfanafuthi Mhlongo, Trive Financial Market Analyst
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