Since the start of this important week’s trading, the price of EUR/USD currency pair has been moving in narrow, limited ranges, as we expected since the end of last week’s trading. Investors prefer the reaction from the results of important economic data to determine their fate.
Today, the most important event will be the monetary policy update of the US Federal Reserve. This is at a time when expectations increased that the date of the policy tightening was imminent, amid the rise of US inflation to its highest level since 2008. The labor market improved with the resumption of economic activity in the United States in light of the progress in the pace of vaccination. Since the beginning of the week's trading, the price of the euro-dollar has settled in a range between the level of 1.2094 and the level of 1.2147, before settling around the level of 1.2125 at the time of writing the analysis.
Commenting on the performance of the currency pair. Axel Rudolph, Chief Technical Analyst at Commerzbank says, “A drop towards the next support level at 1.2052 for mid-May on a daily chart close basis is likely to lead to a deeper bounce to the 1.1994/86 support range (mid-March highs and April 22nd as well as May lows). ) which should ideally hold the downside.” "And the unexpected bullish reversal currently above last week's high at 1.2218 would re-engage with 1.2266 resistance, the end of May high, which protects the 1.2349 high of January," he added.
Jane Foley, Senior FX Market Analyst at Rabobank says, “Although there may be room for some disappointment in the US dollar for today's event, we expect this to be short-lived. We see scope for EUR/USD to test the 1.20 support this summer with the expectation that the tapering discussion of Fed policy will start soon and “in earnest”. Foley added: “ECB President Lagarde made it clear last week that there will be no change in the ECB's asset purchase program yet. In terms of inflation risks, this has historically been cooler in the eurozone than in the US.
No change is expected in the US interest rate or the $120 billion a month quantitative easing (QE) program. The market will scrutinize policy makers' statement of expectations for future interest rates closely for clues about whether borrowing costs are higher and increased investor returns are likely to be realized well before the time indicated in 2024.
Technical analysis of EUR/USD: On the time frame chart, the bears’ success in breaching the support level 1.2075 for the EUR/USD currency pair will increase the bearish momentum to move towards stronger support levels. A real shift in the general trend still has the opportunity to rise, especially if the bulls return in the currency pair. The resistance level is 1.2220.
The pair will remain in a neutral position until the reaction from today's US housing data, then the important monetary policy decisions of the US Central Bank, its policy statement, updating its expectations, and then the statements of the Governor of the Bank, Jerome Powell. The currency pair will move aggressively in response to this data, so be careful.