The Euro (EUR) remained under pressure against the US dollar (USD), trading lower at 1.07299, reflecting a decline of over 1% in two sessions. This downtrend was exacerbated by the recent US inflation report and anticipation surrounding the European Central Bank (ECB) interest rate decision.
The ECB is expected to maintain interest rates at record-high levels during its upcoming meeting, marking the fifth consecutive session. However, signals of readiness to ease monetary policy in the near future are anticipated. President Christine Lagarde’s remarks will be closely scrutinized for insights into the ECB’s trajectory, particularly following the Federal Reserve’s reduced likelihood of a rate cut due to strong US inflation and job growth figures. Currently, money markets suggest an 80% chance of the first ECB rate cut occurring in June. Any indications from Lagarde regarding the pace of easing post-June will be pivotal for market sentiment.
Technical Analysis
The 4-hour chart shows that the EURUSD faces a bearish short-term outlook. The pair has broken below its key moving averages [20-SMA (green line), 50-SMA (blue line), and 100-SMA (orange line)], indicating a shift in momentum to the downside. The 20-SMA also recently broke below the 50-SMA and 100-SMA below, also confirming the bearish momentum.
With the downward-inclined RSI (37.07) firmly trading below the 50.00, sustained Euro weakening would likely offer short-term trading opportunities towards the 1.06552 support level in the near term. A successful break below the 1.06552 level would likely bring the major support level of 1.05166 into play in the short term. However, renewed buying pressure could leave the 1.08242 resistance level as the initial level of interest in the near term. A break above the initial resistance level, with significant volume, could confirm the bullish momentum, likely bringing the 1.09537 resistance level into play.
Summary
The Euro finds itself in a precarious position ahead of the ECB meeting. A dovish signal from Lagarde, hinting at a June rate cut, could further weaken the Euro against the resurgent US dollar. Technically, the short-term outlook is bearish, with downside targets at 1.06552 and potentially 1.05166. However, a hawkish surprise from the ECB or a reversal in US dollar strength could trigger a short-covering rally in the Euro.
Sources: TradingView, Trading Economics, Reuters, European Central Bank.
Piece written by Mfanafuthi Mhlongo, Trive Financial Market Analyst
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