The EURUSD currency pair faces a challenging start to the year, sliding 1.34% under the resilient influence of the Greenback.
The dollar’s strength is fuelled by diminishing expectations of an imminent rate cut, shifting market sentiment significantly. The probability of a rate cut plummeted from 77% to 41% in just two weeks, bolstering the Greenback. Encouraging U.S. economic metrics, including an uptick in December retail sales and consumer sentiment, boosted the dollar, while an inflation uptick to 3.4% validates the narrative of higher rates for longer.
Meanwhile, Eurozone challenges emerged as mixed economic indicators revealed a manufacturing outlook stuck in contractionary territory at 46.6 for January. The services sector hit a three-month low of 48.4, posing a hurdle for the Euro’s strength. The European Central Bank’s decision to maintain rates at 4.5%, guided by persistent inflation above the 2% target, adds another layer to the currency pair’s dynamics. The impending PCE Price Index, the Federal Reserve’s preferred inflation gauge, looms large, poised to influence the EURUSD’s trajectory in the upcoming period.
Technical
The EURUSD currency pair recently experienced a notable shift in sentiment, signalling favour to the downside.
Breaking below an ascending channel pattern and residing beneath the 100-day moving average signifies an ongoing downtrend. Overbought RSI conditions at the 1.11393 resistance level precipitated a downturn, finding support at the 1.07238 level amid oversold RSI conditions, leading to a subsequent upsurge.
Presently hovering around the 61.80% Fibonacci Retracement Golden Ratio, the pair faces a pivotal juncture. A potential reversal scenario looms if the Golden Ratio serves as an intermediate support level. The 1.11393 resistance level could become a point of interest to the upside if bullish momentum prevails. Conversely, considering the persisting bearish sentiment, the 1.07238 level may be retested.
Summary
The Euro faces headwinds as a resilient Greenback dominates, triggering a 1.34% slide in the EURUSD pair. Diminished rate cut expectations in the U.S. contribute to the Greenback’s strength, backed by robust economic metrics, while Eurozone challenges persist with a contracting manufacturing and services sector. Technically, the pair navigates a pivotal moment at the 61.80% Fibonacci Retracement Golden Ratio, with a potential upside at 1.11393 or a retest of 1.07238, given ongoing bearish sentiment.
Sources: CME, European Central Bank, Reuters, TradingView
Piece Written By Nkosilathi Dube, Trive Financial Market Analyst
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