The price of the EUR/USD currency pair moved positively yesterday, with gains that reached the resistance level 1.0865, before settling around 1.0810 at the time of writing. The euro pairs are waiting for the announcement of the European Central Bank's monetary policy update today, amid expectations of a hike.
Prior to that, the US dollar was sold off when the US Federal Reserve announced its decision to keep US interest rates unchanged at 5.25%, but the US currency managed to recover losses when they shared plans to continue tightening once inflation picked up again. Meanwhile, the Euro can also hold on to its gains as the European Central Bank remains strong on a narrow path. The central bank hiked interest rates as expected in its latest policy decision and indicated scope for further hikes down the line.
There are no major reports from the Eurozone and the US economy for the rest of the week, so investors may hold out until PMI figures are released late next week. Until then, risk appetite may be the main driver of the euro-dollar price movement.
Yesterday the Fed said it would leave the US benchmark interest rate unchanged at 5-5.25%, as expected, but further increases were necessary. At the same time, projections for the future path of interest rates as envisaged by the FOMC - known as a dot chart - showed that policy makers believe they will be required to deliver another 50 basis points in rate hikes by the end of the year.
This could be seen as a surprise policy event as the markets were looking for a complete end to the cycle or a potential rally of an additional 25bps at most.
However, Fed Chairman Jerome Powell said in his address to the media that the journey to reach the 2.0% inflation target still has some way to go, suggesting that this is not necessarily the end of the road for the rate hike cycle. Almost all of the policymakers thought some additional increases this year were "appropriate," Powell added. And that's a clear decline in market prices to start rate cuts as soon as the year is out and certainly by 2024; It is the communication that the Fed feels is necessary to ensure that credit conditions do not ease and stoke inflationary pressures.
Technical analysis of the euro / dollar:
- EUR/USD price breached above a consolidating rising wedge pattern on the hourly chart to indicate that a sharp impulse is on the way.
- The price retraces to the previous resistance, which may hold as support.
- This is in line with the 50% to 61.8% Fibonacci retracement levels around 1.0805 to 1.0820.
- If these are enough to keep losses in check, EUR/USD may resume climbing to swing highs of 1.0865 or higher.
The 100 SMA is above the 200 SMA to indicate that there is a bullish turnaround but lacks momentum or that the rally is more likely to gain momentum than reverse. The 100 SMA is aligned with the wedge backing to add to its strength as a floor. Stochastic is heading lower at the moment and has a little room to slip before reversing to oversold levels. A shift to the upside means that buyers are willing to return and keep EUR/USD on the rise.
The RSI has more room to cover before hitting the oversold territory to indicate exhaustion among the sellers, so a pullback could continue to occur.
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