The EURUSD currency pair faced a 70 basis point decline this week, largely influenced by a resurgence in the US Dollar. This climb in the US Dollar emerged as traders reeled back their expectations for immediate rate cuts by the Federal Reserve.
The market’s focus revolved around pivotal events, including the unveiling of December’s policy meeting minutes. These minutes showcased the Fed’s confidence in taming inflation but also underscored concerns about the potential repercussions of maintaining a notably strict monetary policy on the economy. Despite these deliberations, the Fed hasn’t signalled a clear timeline for potential rate cuts, with some policymakers emphasizing the need to uphold prevailing restrictive rates.
Furthermore, recent data portrayed a continued deceleration in US manufacturing throughout December, albeit at a slower pace, coupled with a third consecutive monthly decline in job openings, indicating a gradual easing in labour market conditions. Looking ahead, market anticipation revolves around the forthcoming release of December’s Eurozone inflation figures and the highly awaited US Nonfarm Payrolls report.
The EURUSD pair experienced a notable upward trajectory nearing the end of 2023, securing a three-week streak of gains within an established uptrend. Positioned confidently above the 100-day moving average, it followed an ascending channel pattern.
During this ascent, a substantial support level materialized at 1.08884, propelling the pair beyond the psychological threshold of 1.10000. However, the journey encountered resistance at the 1.11393 mark, identified by overbought RSI conditions, prompting a retracement due to downward pressures.
The breakdown below the critical 61.80% Fibonacci Retracement Golden Ratio led to a full retracement back to the support level. A subsequent reversal occurred as oversold RSI conditions emerged, coinciding with an upturn in Germany’s regional inflation data, bolstering the Euro. If significant upward volume persists, a revisit to the 50% level could be imminent, signalling a potential upside interest point. Conversely, the 1.08884 support level might face a retest if bearish pressures mount.
The EURUSD faced a downturn amidst the Greenback’s resurgence, driven by tempered rate-cut expectations from the Federal Reserve. With U.S. data showing manufacturing slowdowns and labour market cooling, attention now turns to key reports, including Eurozone inflation figures and the US Nonfarm Payrolls. The near-term outlook hinges on upcoming data releases and the Federal Reserve’s policy stance, shaping the pair’s future movements.
Sources: Federal Reserve, CME, Reuters, TradingView
Piece Written By Nkosilathi Dube, Trive Financial Market Analyst
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