The exchange rate of the euro against the dollar, EUR/USD, rebounded from its lowest levels in nearly three months in the last sessions. It entered the trading of the new week, ahead of the price of the euro against the dollar, EUR/USD, on the cusp of the 1.0800 level. The US inflation and the interest rate decision of the Federal Reserve Bank and the update of the central bank European (ECB) are just some examples. This is one of the factors that could undermine the recovery of the most famous currency pair in the forex market in the coming days.
The single European currency - the euro - was the weakest performer among the major currencies in the week through Monday, but it still managed to rise significantly against the dollar late last week after the Bureau of Labor Statistics announced a sharp increase in new social care claims related to unemployment last week. The data was another indication that the US interest rate is having its intended effect, and the resulting dollar sell-off helped lift the euro to nearly 1.08 last week despite Eurostat revisions to economic growth estimates suggesting that the euro-zone economy has slipped into a technical recession.
Commenting. “The ECB is likely to underestimate a mild technical recession in the eurozone as only a few countries have been affected,” says Nerigos Makulis, an analyst at Swedbank. He adds, “Manufacturing continues to contract in most eurozone countries, while many service sectors have benefited from increased tourism flows and a general consumer desire to splurge on experiences rather than goods. The thriving service sectors also explain the continued strength in the labor markets.”
What the ECB's technical recession will not be known until Thursday, but the bank stressed last month that future policy decisions will be "data-driven" while many economists still expect another rate hike this week, followed by at least one more. Either in July or September.
It wouldn't necessarily hurt the euro if the ECB wrote off the recession as a technical matter and could help the single currency if the bank signals that further increases are still possible but the risk is that the EUR/USD rebound ahead of the US on Tuesday is undercut. Inflation figures or the Fed's decision on Wednesday.
Overall, the EUR/USD has fallen over the past month as markets abandoned interest rates later this year and after inflation in the US fell less than expected for the month of April. The consensus is that inflation fell from 4.9% to 4.1% last month and that the core inflation rate drops from 5.5% to a new low of 5.3%. US inflation has fallen steadily since last June, but the moderation has slowed in recent months while the core inflation rate, which central bankers see as a more reliable reflection of domestic inflation pressures, has so far stuck at 5.5%.
All in all, the big risk for the Euro and others this week is that the fundamental rate will remain near its recent levels rather than fall further and lead the financial markets to expect additional increases in the Fed's interest rates, most likely as soon as Wednesday.
Technical analysis of the euro / dollar:
- The price of the EUR/USD currency pair formed higher lows and higher peaks heading upwards inside an ascending channel on its hourly time frame.
- The price has just pulled back from the resistance and is falling back to the support level again.
- The 38.2% level appears to be holding as a floor in the near term as it lines up with the mid-channel area of interest.
- If this is enough to keep the losses under control, the pair may resume rising to the swing top near the 1.0790 mark or the top of the channel.
The biggest correction might reach 50% at 1.0730 or 61.8% Fibonacci retracement at 1.0715 near the dynamic support at the moving averages. On the subject of moving averages, the 100 SMA is above the 200 SMA to indicate that the near-term trend is turning higher or that support levels are more likely to hold than to be broken. The line in the sand for a bullish pullback could be channel support closer to 1.0700, as a break below this could indicate that a reversal is imminent.
At the same time, Stochastic has already started to rise from the oversold area to indicate the return of bullish pressure, and the oscillator has plenty of room to rise before reflecting exhaustion among the buyers. Meanwhile, the RSI is already turning higher without even reaching the oversold territory, which indicates that buyers are eager to return.
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