After experiencing three consecutive weeks of gains, the EURCHF currency pair faces a notable downturn of 57 basis points this week, signalling a potential shift in sentiment.
Recent economic indicators paint a mixed picture, with the Euro Area manufacturing outlook showing a modest improvement but remaining in contractionary territory at 46.6 for January. The services sector, on the other hand, continues to underperform, hitting a three-month low at 48.4. Germany and France, the Eurozone’s key economies, exhibit a nuanced scenario with a manufacturing uptick but services decline. This divergence poses a challenge to the Euro’s strength.
As the Euro faces potential headwinds, today’s focus turns to the European Central Bank’s interest rate decision and President Lagarde’s speech. Traders keenly await cues on the region’s monetary policy outlook, adding a layer of anticipation to the EURCHF’s dynamic in the currency market.
Technical
The EURCHF currency pair experienced a notable shift in sentiment, breaking free from a persistent downtrend illustrated by movements beneath the 100-day moving average within a descending channel pattern.
The breakout above the channel and moving average marked a turn towards bullish sentiment. December witnessed a significant selloff from a resistance level at 0.95449, arising from overbought RSI conditions. However, a rebound followed, finding support at 0.92537 amid oversold RSI at the channel’s lower boundary.
The aggressive upside momentum led to the breakout above the descending channel and the 100-day moving average, with the breach of the 61.80% Fibonacci Retracement Golden Ratio signalling intensified bullish pressures. Overbought conditions above the Golden ratio prompted a retreat to the 50% level, becoming a crucial intermediate support. The pivotal question hinges on this level – whether it holds, fostering a potential rise to 0.95449 or yields, opening the door to the 38.20% level amid increased selling pressures.
Summary
The EURCHF’s recent downturn, driven by mixed economic indicators and potential Eurozone challenges, questions the Euro’s resilience. Today’s spotlight on the European Central Bank’s decision adds anticipation. Technically, the pair’s shift from a downtrend to bullish momentum faces a crucial test at the 50% support level. The path to the 0.95449 or 38.20% level hinges on this balance.
Sources: S&P Global, Reuters, TradingView
Piece Written By Nkosilathi Dube, Trive Financial Market Analyst
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