The EURUSD currency pair has witnessed a shifting tide in recent days, marked by bullish momentum leading up to the pivotal release of the Federal Open Market Committee (FOMC) minutes this Wednesday. The pair has seen three consecutive days of gains, commencing the new week on a higher note.
The pair had initially been descending, driven by the steadfast performance of the Greenback, buoyed by a series of encouraging economic indicators. Notably, the U.S. inflation rate for January exceeded expectations, reaching 3.1%, sparking market reactions. Although it fell short of the previous month’s figure, its elevation above the anticipated 2.9% prompted significant shifts in market sentiment. Additionally, the month-on-month Producer Price Index (PPI) for January exhibited robust growth, expanding by 0.3%, surpassing December’s figures and market expectations alike.
This stronger-than-anticipated inflationary pressure in January caused investors to recalibrate their expectations regarding Federal Reserve interest rate cuts for the year, with the likelihood of a May rate cut plummeting to 32% from 50% prior to the release of inflation data. As traders eagerly await the release of the FOMC minutes this week, the EURUSD’s trajectory hinges on the subtle nuances of the Federal Reserve’s monetary policy stance, inviting a keen eye on market developments and reactions.
Technical
The EURUSD pair has been entrenched in a downtrend, characterized by its position below the 100-day moving average and the formation of a descending channel pattern.
Sellers have exerted dominance, evident by the resistance formed at the 1.08055 level, driving the pair lower. However, amidst oversold conditions indicated by the Relative Strength Index (RSI), support emerged at 1.06949, triggering a retracement as buyers entered the market. This buying pressure propelled the pair past the 61.80% Fibonacci Retracement Golden Ratio, converging towards the 100-day moving average just below resistance.
The retest of the moving average poses a crucial juncture. A bearish reversal could ensue if it holds as intermediate resistance, leaving the Golden Ratio or 50% levels probable. Conversely, a breakthrough above this level could signal a retest of the 1.08055 resistance.
Summary
As the EURUSD awaits the FOMC minutes, recent bullish momentum clashes with a broader downtrend, with resistance at 1.08055. Market sentiment shifted amidst upbeat U.S. inflation data, influencing Federal Reserve rate cut expectations. Technicals suggest a pivotal moment near the 100-day moving average, crucial for determining the potential direction of future price action.
Sources: CME, U.S. Bureau of Labor Statistics, Reuters, TradingView
Piece Written By Nkosilathi Dube, Trive Financial Market Analyst
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