The Euro faces headwinds despite hawkish pronouncements by the European Central Bank (ECB). Eurozone inflation figures for April are expected to remain steady at 2.4%, according to a Reuters poll. This contrasts with the European Central Bank’s (ECB) target of 2% and suggests waning price pressures. The ECB has signalled its intention to cut interest rates in June as economic activity weakens.
Meanwhile, the Federal Open Market Committee (FOMC) meeting on Wednesday is a key event for the dollar. The Fed is likely to maintain rates but may adopt a hawkish stance due to hotter-than-anticipated inflation reports in March. This bets on potential divergence in monetary policy, with the ECB easing and the Fed potentially tightening, could put downward pressure on the Euro.
Technical Analysis
The EURUSD struggles to maintain its upward momentum after reaching two-week highs on Friday. Price action trades marginally above the 50-SMA (blue) but below the 20-SMA (green) and 100-SMA (orange), hinting at a potential downside bias. The RSI hovering around 50 further reinforces market indecision.
With the RSI (47.60) firmly trading around the 50.00 level, continued Euro weakness would likely offer short-term trading opportunities towards the 1.05998 support level in the near term. A successful break below the 1.05998 level would likely bring the major support level of 1.05166 into play in the short term.
However, sustained buying pressure and a push above the 20-SMA could leave the 1.07516 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 1.08258 and 1.08860 resistance levels into play.
Summary
The EURUSD faces headwinds from the upcoming data deluge. Weaker-than-expected Eurozone inflation data and a hawkish Fed could exacerbate the Euro’s decline. Technically, a break below 1.05998 opens the door for a deeper sell-off, while a surge above 1.07516 suggests a potential bullish reversal.
Sources: TradingView, Trading Economics, Reuters, CNBC.
Piece written by Mfanafuthi Mhlongo, Trive Financial Market Analyst
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