The EUR/USD started the week on a flat foot after declining over 1% in the previous week, under pressure from a combination of factors. Friday’s German inflation data came in higher than expected, raising concerns that the European Central Bank (ECB) may need to remain hawkish on interest rates for longer. Additionally, the US Jobs Report showed strong employment growth, which bolstered expectations of a continued tight monetary policy from the Federal Reserve.
The looming central bank meetings—particularly the Federal Reserve’s, followed by the ECB’s—have created an air of uncertainty. Market optimism for early rate cuts hinges on these meetings, with expectations of potential rate adjustments from both central banks as early as 2024. This outlook is compounded by divergent views on inflation and economic stability, adding layers of complexity to the currency pair.
Technical Analysis:
The EURUSD has been trading within a descending channel pattern in the 4-hour chart, currently hovering near the channel’s resistance. The price action sits below key SMAs [20-SMA (green line), 50-SMA (blue line), 100-SMA (orange line)], indicating bearish momentum. However, the RSI shows a flat trend around the selling region, suggesting a potential reversal or consolidation.
Immediate support is observed at 1.07310; a breach may validate further downside, targeting the 1.06900 level. Conversely, a breakout above 1.08023 could signal bullish momentum towards resistances at 1.08469 and 1.08819 in the short term.
Summary:
The EUR/USD faces a pivotal juncture amid conflicting economic cues and upcoming central bank meetings. While dovish ECB sentiments persist, the USD’s strength is underpinned by optimistic economic prospects. Technicals hint at a potential bearish continuation, yet a breakout could pivot sentiment towards a bullish trajectory.
Sources: TradingView, Trading Economics, Reuters, Dow Jones Newswire, MT Newswire.
Piece written by Mfanafuthi Mhlongo, Trive Financial Market Analyst
Disclaimer: Trive South Africa (Pty) Ltd, Registration number 2005/011130/07, and an Authorised Financial Services Provider in terms of the Financial Advisory and Intermediary Services Act 2002 (FSP No. 27231). Any analysis/data/opinion contained herein are for informational purposes only and should not be considered advice or a recommendation to invest in any security. The content herein was created using proprietary strategies based on parameters that may include price, time, economic events, liquidity, risk, and macro and cyclical analysis. Securities involve a degree of risk and are volatile instruments. Market and economic conditions are subject to sudden change, which may have a material impact on the outcome of financial instruments and may not be suitable for all investors. When trading or investing in securities or alternative products, the value of the product can increase or decrease meaning your investment can increase or decrease in value. Past performance is not an indication of future performance. Trive South Africa (Pty) Ltd, and its employees assume no liability for any loss or damage (direct, indirect, consequential, or inconsequential) that may be suffered from using or relying on the information contained herein. Please consider the risks involved before you trade or invest.
