Yesterday, the EURUSD currency pair experienced a 0.67% decline, and the trend persisted in the early Wednesday session, teasing a fifth consecutive day of decrease. This shift coincided with the US Dollar reaching monthly highs, prompted by Federal Reserve governor Christopher Waller’s recent statements. Waller emphasized that the Fed is close to attaining its 2% inflation goal and cautioned against hastily reducing rates without confirming sustained achievement. Consequently, the CME FedWatch Tool indicated a decrease in the market’s expectation of a rate cut in March from 81% a few days ago to 63.9%.
Simultaneously, various ECB officials contributed to ongoing uncertainty about the timing of potential monetary policy easing. Despite their remarks, the Eurozone inflation report, scheduled for later today, holds the potential to trigger significant and unpredictable fluctuations in the EURUSD currency pair.
Technical
On the 4H chart, a sustainable breakdown occurred at the ascending channel support. The 50-SMA (blue line) has fallen below the 25-SMA (green line), with the currency pair showing no sign of slowing down from its current bearish trend. However, the RSI indicates oversold conditions, leaving the door open for a potential retracement as the inflation data comes due.
Support at 1.0859 will be crucial in the upcoming sessions. If this support holds, the retracement could be initiated, with the first potential hurdles being resistance at 1.0867 and 1.0879. If these levels get cleared, the pair could move toward 1.0893 and 1.0904 but face many challenges before reaching the Fibonacci midpoint of 1.0931 at the 25-SMA.
Conversely, if support at 1.0859 fails to hold, it could confirm the sustainability of the downtrend. Lower support at 1.0848 could then come into the spotlight in the sessions to come.
Summary
As the Eurozone inflation report approaches, the EURUSD currency pair looks poised to end its fifth consecutive day in the red. However, if support at 1.0859 holds in the upcoming session, a retracement of the recent downtrend could emerge.
Sources: Koyfin, Tradingview
Piece written by Tiaan van Aswegen, Trive Financial Market Analyst
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