The EURUSD currency pair has faced a tumultuous week, marked by a 61 basis point decline week-to-date, signalling potential challenges ahead for the Euro.
Approaching a two-week losing streak, it struggled to maintain traction after a brief surge following the Federal Reserve’s recent interest rate decision. Despite initial optimism sparked by the Dot Plot indicating the possibility of three rate cuts this year, Wednesday’s gains swiftly dissipated, leaving the pair vulnerable to further downward pressure.
Primarily driving this descent is the Euro’s weakness, exacerbated by dovish sentiments from a generally hawkish European Central Bank policymaker. Bundesbank President Joachim Nagel’s comments further fuelled speculation, suggesting that the ECB might entertain rate cuts before the summer break due to inflation’s decline towards the bank’s 2% target. Such remarks have left traders and analysts alike pondering the implications for Eurozone monetary policy and its impact on the EURUSD pair’s trajectory.
Technical
The EURUSD pair has been entrenched in a downtrend, accentuated by its position below the 100-day moving average, indicating prevailing bearish sentiment. Recent price action has seen the pair breaking down beneath an ascending channel pattern, solidifying the downtrend’s validity.
Notably, selling pressures intensified at the 1.09425 level, coinciding with a retest of the ascending channel pattern and overbought conditions as indicated by the RSI. This level has now transitioned into a formidable resistance point, adding further weight to the bearish outlook.
However, signs of a potential reversal have emerged as the pair approaches the 1.07984 support level. Oversold RSI conditions coupled with declining downside volumes hint at a possible shift in momentum. Should a reversal materialize, attention is likely to focus on the 100-day moving average as a pivotal point to the upside. Conversely, if selling pressures persist, a complete retest of the 1.07984 support level seems plausible, potentially exacerbating the bearish momentum.
Summary
Amidst a backdrop of Euro weakness and dovish ECB sentiments, the EURUSD faces continued downside pressure, poised for back-to-back weekly losses. Technical indicators point to a challenging road ahead, with the 1.09425 resistance level proving formidable. Attention now turns to the critical 1.07984 support level for potential reversal cues.
Sources: Reuters, Dow Jones Newswires, TradingView
Piece Written By Nkosilathi Dube, Trive Financial Market Analyst
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