The Euro (EUR) strengthened against the US Dollar (USD) on Wednesday, reaching its highest level since February 1st, buoyed by a weaker Dollar and signals from the European Central Bank (ECB). Slower-than-expected Eurozone wage growth (4.5%) reinforced the ECB’s cautious approach to monetary policy, suggesting rate cuts are likely this year, but their timing remains uncertain. This has bolstered the Euro’s appeal, particularly against the backdrop of a weakening USD due to lower US Treasury yields and bets on potential Fed rate cuts later in 2024.
However, concerns about a wider global economic slowdown and potential risk-aversion could limit the Euro’s upside. Additionally, the upcoming FOMC minutes later today could offer further clues on the Fed’s rate path, potentially impacting the USD and influencing the EURUSD dynamic.
Technical Analysis:
On the 4-hour chart, the EURUSD trades around 1.08003 following a break above a descending channel, indicating a potential bullish reversal. The 20-SMA (green line), 50-SMA (blue line), and 100-SMA (orange line) all aligned in an upward trend, supporting the bullish momentum. However, the slightly downward-pressured RSI at 57.24 suggests potential for a pullback before further upside.
The RSI sits flat at around 50, suggesting neutral momentum. Short-term trading opportunities could exist towards the resistance level at the 150.425 price level should the price action push above the triangle. A break above the initial resistance could confirm the bullish momentum, likely bringing the 150.885 resistance level into play.
However, a successful push below the triangle could offer short-term trading opportunities towards the initial support at 148.999 should the 23.60% Fibonacci retracement level fail to give significant support. A break below the 148.999 level would likely bring the 50.00% Fibonacci retracement level (148.390) and 61.80% Fibonacci retracement level (147.802) support levels into play in the short term
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Summary
The EURUSD pair finds itself at a crossroads, with upside potential fuelled by a less dovish ECB and a weaker USD but countered by global uncertainties and the prospect of higher for longer Fed rates. The FOMC minutes could provide crucial direction, with hawkish signals potentially strengthening the USD and dovish tones favouring the EUR. Technical analysis suggests potential short-term trading opportunities within the current range, but a decisive breakout hinges on broader market sentiment and future economic data.
Sources: TradingView, Trading Economics, Dow Jones Newswire, Reuters.
Piece written by Mfanafuthi Mhlongo, Trive Financial Market Analyst
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