The Euro (EUR) struggles to maintain its footing against the US Dollar (USD) as mixed signals emerge from both sides of the Atlantic. Recent statements from ECB officials, including Chief Economist Philip Lane, indicate a dovish stance, with expectations of interest rate cuts in June to combat stubbornly low inflation. However, ECB President Lagarde’s silence on further cuts leaves markets uncertain.
Conversely, the Fed’s hawkish remarks, notably from Minneapolis Fed President Neel Kashkari, hint at a possible delay in rate cuts, emphasising the need for clear evidence of disinflation before considering tightening policies. Despite market expectations of rate cuts, the Fed’s cautious approach lends strength to the US dollar.
Technical Analysis
Looking at the 4-hour chart, EURUSD currently sits precariously at 1.07432 within an ascending channel. A recent price breach below the 20-SMA (green line) indicates short-term weakness, although it remains above the supportive 50-SMA (blue line) and the 100-SMA (orange line). The 20-SMA also trades above both the 50-SMA and 100-SMA, suggesting a potential uptrend bias.
The Relative Strength Index (RSI) sits at 48.09, hovering around the midline. Continued Euro weakness could present short-term trading opportunities towards the 1.07145 support level. A decisive break below this level could expose the 1.06508 support and the major support zone at 1.06023.
However, if bulls regain control and push the price above the 20-period SMA, the initial resistance level of 1.07902 could come into play. A significant volume surge breaching this level could confirm bullish momentum, potentially targeting 1.08495 and the major resistance zone at 1.08850.
Summary
The Euro faces a confluence of headwinds – a potentially hawkish Fed, a dovish ECB, and a weakening Eurozone economy. While the technical picture remains somewhat ambiguous, the overall sentiment leans towards a bearish bias in the near term. A breakdown below the 1.07145 support could trigger further Euro weakness, while a break above the 1.07902 resistance is needed to signal a potential trend reversal.
Sources: TradingView, Trading Economics, State Secretariat for Economic Affairs.
Piece written by Mfanafuthi Mhlongo, Trive Financial Market Analyst
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