- The EUR/USD exchange rate entered the new week's trading near its highest level in eight months.
- With technical resistance and multiple macroeconomic risks lurking in the next path, the single European currency may struggle to extend its recovery further in the coming days.
- The recent gains of the EUR/USD currency pair reached the resistance level of 1.0874, before settling around the level of 1.0820 at the time of writing the analysis.
- This is the highest for the currency pair since April 2021, and it is currently facing immediate obstacles on the charts in the form of technical resistance levels around 1.0842 and 1.0945.
In general, the euro benefited from selling the US dollar on a large scale, including after official figures revealed a third consecutive decline in inflation in the United States, which could mark the beginning of the end of the tightening policy of the Federal Reserve (Fed) and its battle to return the annual pace of price growth to targeting. 2%.
Commenting on this, Kenneth Brooks, an analyst at Societe Generale Bank, says: “European data was weak and overshadowed by the comments of the members of the European Central Bank Council to support more price increases, as was the minutes of the last meeting.” "Buying is taking a break with a spot at the highest level since last April and near overbought territory," he added.
Noteworthy European economic figures are still in short supply, but the single European currency could respond this week to GDP data from China, a highly anticipated monetary policy decision from the Bank of Japan (BoJ) and letters from the European Central Bank (ECB) led by Christine Lagarde.
For his part, Joseph Capurso, Head of International Economics at the Commonwealth Bank of Australia, wrote, “We expect the market to ignore any negative surprise of Chinese economic data. However, an upside surprise in Chinese data will support commodity prices and the Australian dollar.” “The big drop in US yields for two years has led to a sharp rally in the Eurozone minus the spread of US bonds and support for EUR/USD and therefore we expect more policy rate cuts by the FOMC and more than what is currently priced in, which means Implying more bullishness for EUR/USD.”
Analysts cite the expected deterioration of US economic data and market expectations of US interest rate cuts later this year to believe that the EUR/USD rate could rise further to 1.1033 in the coming weeks.
Overall, US interest rate-setters may continue to disagree with market assumptions about rate cuts, however, to the extent they do, there could be downside risks for the euro and other currencies relative to the dollar as January gives way to February and Fed policy follows. This will be particularly the case if bets on upcoming Fed rate cuts and resulting drops in US government bond yields prompt the FOMC to make a choice in favor of more quantitative tightening at its next meeting early in the month.
Today's Chinese economic numbers and Wednesday's BoJ decision are likely to have more influence on the single currency in the coming days, while speeches by European Central Bank President Christine Lagarde on Thursday and Friday are also likely to attract market attention. Meanwhile, declines in commodity prices, unusually warm weather, and resilient performance from the German economy are likely to limit any downside in the event of a corrective pullback in the euro-dollar rate.
Technical forecasts for the EUR/USD pair:
- In the near term and according to the performance of the hourly chart, it appears that the EUR/USD is trading within a descending channel formation.
- This indicates a significant short-term bearish bias in market sentiment.
- Therefore, the bears will target short-term profits at around 1.0809 or below at the support at 1.0792.
- On the other hand, the bulls will be looking for a bounce around 1.0840 or higher at 1.0855 resistance.
In the long term, and according to the performance on the daily chart, it appears that the EUR/USD is trading within the formation of an ascending channel. This indicates a significant bullish momentum in the long-term market sentiment. Therefore, the bulls are looking to extend the current rally towards 1.0938 or higher to the 1.1087 resistance. On the other hand, the bears will target long-term profits at around 1.0668 or below at the support at 1.0505.
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