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.
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.
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
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