The EURUSD currency pair is currently making waves, poised for its third consecutive week in positive territory. The pair has surged nearly 1% this week alone, painting a compelling picture of market dynamics. The driving force behind this bullish trend is the weakening of the US dollar, which slipped to a five-month low against the euro and a basket of currencies on Wednesday.
Fuelling the optimism is widespread anticipation of imminent interest rate cuts by the Federal Reserve, with murmurs suggesting a possible move as early as March. The Fed’s dovish stance, which hinted at potential rate reductions throughout 2024, has added further momentum to this positive sentiment.
Crucially shaping this narrative is the proximity of inflation to the Federal Reserve’s coveted 2% target, as evidenced by the decline in the PCE Price Index to 2.6% in November. As the Greenback yields ground, risk assets have gained market favour.
Technical
The EURUSD currency pair is currently showcasing an evident uptrend, marked by its deviation from the 100-day moving average within an ascending channel. This surge has propelled the pair beyond significant psychological levels, notably breaching the 1.10000 and settling above 1.11000.
A key point in this upward trajectory initiated from the 1.07238 level, aligning with the lower boundary of the ascending channel and coinciding with oversold conditions of the Relative Strength Index (RSI). This kickstarted a robust upward movement, powering the pair above the 100-day moving average.
As the pair approaches the 1.11497 resistance level established in July, following a notable swing high, traders will likely eye this level as a pivotal point. Should the current momentum persist, a retest of this level becomes likely. However, caution surfaces with prevailing overbought RSI conditions, hinting at a possible reversal. If a reversal takes place, the price could align with the moving average, serving as a potential point of convergence for a downside correction.
Summary
The EURUSD currency pair exhibits a resilient upward trend, driven by the weakening US dollar and market optimism surrounding potential Federal Reserve interest rate cuts. This surge, highlighted by breaching key psychological levels, faces a critical juncture at the 1.11497 resistance level.
Sources: Reuters, TradingView
Piece Written By Nkosilathi Dube, Trive Financial Market Analyst
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